BEIS White Paper on Restoring Trust in Audit and Corporate Governance – Enhanced Malus and Clawback Proposals
On 18 March BEIS published plans to strengthen the UK’s audit and corporate governance framework and empower shareholders. A copy of the white paper can be found here: Restoring trust in audit and corporate governance: proposals on reforms - GOV.UK (www.gov.uk)
While the white paper has much to say about the regulation of auditors and actuaries and providing regulators with stronger powers to enforce statutory reporting obligations on Directors, of specific interest for Remuneration Committees are proposals to strengthen malus and clawback provisions. In the white paper, BEIS notes that in a number of high-profile corporate failures, the company has not had sufficient powers to clawback bonuses or share awards from executives. BEIS, therefore, intends to ask the FRC to consult on requiring certain minimum malus and clawback triggers, including:
- material misstatement of results or an error in performance calculations;
- material failure of risk management and internal controls;
- misconduct;
- conduct leading to financial loss;
- reputational damage; and
- unreasonable failure to protect the interests of employees and customers.
Any changes would be introduced by changing the UK Corporate Governance Code; however, BEIS will also consider extending these minimum requirements to all listed companies, most likely through a change to the Listing Rules.
A&M’s view
Many companies have already introduced the majority of these malus and clawback triggers into their bonus and share plans. However, two of the new suggested triggers (conduct leading to financial loss and unreasonable failure to protect the interests of employees and customers) appear to be broader in scope, and less specific, than the triggers already introduced by most companies. Malus and clawback provisions are usually only intended to be used in exceptional circumstances and where executives have received undeserved rewards. However, Remuneration Committees and management teams nevertheless may feel that these two additional triggers are open to varied interpretations, and clearer definitions are needed.
Read More:
FRC Guidance on "Comply or Explain" Reporting and BEIS Proposals for Enhanced Malus and Clawback Provisions
How can A&M’s Executive Compensation team help?
A&M Executive Compensation Services is well-positioned to advise Remuneration Committees through this period. Engagements are led by a Managing Director who attends all meetings and is actively involved in all deliverables.
This ensures you always have access to the right advice level, particularly when making critical decisions under time pressure. Our Managing Directors have a combined 80+ years of experience in advising on executive remuneration matters.
