Enforcement of malus and clawback provisions

The introduction of ex-post risk adjustment mechanisms to variable remuneration schemes of executives and certain employees, so called “malus” and “clawback” provisions, allows financial institutions, under certain circumstances, to reduce deferred awards and even claim the return of payments made or shares transferred to them. The objective of these provisions is to prevent the receiving of undeserved compensation and hence, impose a downside risk on variable remuneration.[1] Although the current regulatory framework in the UK requires regulated businesses to implement those mechanisms into their remuneration schemes, the rationale behind these provisions can only be reached, if they prove to be enforceable in practice.