The following Share Incentives guidance note Produced in partnership with Nick Hipwell, Martin MacLeod and Lucy Boyle of Deloitte LLP provides comprehensive and up to date legal information covering:
The concept of withholding or even recovering value from executives if a material adverse event occurs following the award of performance-related pay has become increasingly common in recent years. While malus and clawback undoubtedly have their roots in the financial services sector, they are now being seen increasingly in the general corporate environment as a result of the expectations of the UK’s major institutional shareholders.
Research undertaken by Deloitte LLP demonstrates that incorporating some form of arrangement to withhold and recover value is now a majority practice in the UK’s largest companies. Over 90% of the FTSE100 currently have the capability to operate malus and clawback over the variable pay these companies deliver to their directors.
While the terms are frequently used interchangeably, from a technical perspective malus and clawback have a number of significant differences.
Malus (sometimes also known as ‘soft clawback’) is effectively an additional hurdle to the vesting of awards.
Where a material adverse event takes place, the company can reduce or extinguish the amount the executive may otherwise receive under that award.
Clawback (sometimes also referred to as ‘real’ or ‘hard’ clawback) incorporates into the terms of incentive awards the right to reclaim value from participants once it has
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