Bonuses—considerations when designing executive bonuses

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • Bonuses—considerations when designing executive bonuses
  • Does the cash bonus still have a role?
  • Are executive bonuses linked to performance conditions in practice?
  • How does a remuneration committee assess best market practice?
  • How do malus and clawback provisions feature in bonus arrangements?
  • In practice are executive bonuses discretionary or contractual?
  • Are restrictive covenants enforceable in cash bonus incentive schemes in practice?
  • In practice, do bonus entitlements generally extend into the notice period?
  • How does discrimination feature in best and market practice?

Bonuses—considerations when designing executive bonuses

FORTHCOMING CHANGE: On 18 March 2021, it was announced that the government was launching a consultation on wide-ranging reforms to modernise the country’s audit and corporate governance regime, targeting the UK’s biggest businesses and ensuring markets work effectively. In relation to corporate governance and executive pay issues, proposals include that:

  1. in a clamp down on ‘rewards for failure’, the government proposes to strengthen malus and clawback provisions in executive directors’ remuneration arrangements, to identify minimum clawback conditions which would apply in all cases and have a minimum two-year application period after the award is made. These would include clawback for serious misconduct, a material misstatement of results or an error in performance calculations and failures of internal controls and risk management. Subject to consultation responses, the government proposes to invite the FRC to implement these stronger arrangements through changes to the UK Corporate Governance Code

  2. large businesses would need to be more transparent about the state of their finances, so they do not pay out dividends and bonuses at a time when they could be facing insolvency, and

  3. directors would publish annual ‘resilience statements’ that set out how their organisation is mitigating short and long-term risks, encouraging their directors to focus on the long-term success of the company and consider key issues like the impact of climate change

The closing date

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