The following Share Incentives practice note Produced in partnership with Nick Hipwell, Sarah Ferguson and Chris Baker of DLA Piper 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 is now viewed as best market practice.
While malus and clawback undoubtedly have their roots in the financial services sector, they are also commonplace in the general corporate environment as a result of changes to the Financial Reporting Council’s (FRC) UK Corporate Governance Code following the 2008 recession and the subsequent expectations of the UK’s major institutional shareholders. Furthermore, the idea of malus and clawback as a check on executives’ moral accountability has taken hold among UK shareholders and the UK Department for Business, Energy and Industrial Strategy (BEIS) recently stated that it considers clawback to be a form of ‘natural justice’.
As a result, incorporating some form of arrangement to withhold and recover value from executives has now become a majority practice in the UK’s largest companies and is all but universal among FTSE 100 and FTSE 250 companies.
While the terms are frequently used interchangeably, from a technical perspective malus and clawback have a number of significant differences.
Malus is effectively an additional hurdle to the vesting of awards but is often also used to describe the method of withholding value from a participant up to the point of delivery.
Where a material
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