Malus and clawback
Produced in partnership with Nick Hipwell, Sarah Ferguson and Chris Baker of DLA Piper

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:

  • Malus and clawback
  • The use of malus and clawback
  • What are malus and clawback?
  • Meaning of malus
  • Meaning of clawback
  • Meaning of cross-clawback
  • Development of the use of malus and clawback provisions
  • Practical considerations
  • Who will the clawback apply to?
  • Who makes the decisions?
  • More...

Malus and clawback

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 for responses

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