The Bank of England is consulting on proposals to require all firms authorised by the PRA to amend employment contracts to ensure bonus awards that have been vested can be clawed back from individuals where necessary. The consultation closes on 13 May, 2014.
The Bank of England already has powers to require firms to stop payment of unvested bonuses, called malus; the proposals in today’s document would represent a further strengthening of the remuneration code.
The conditions in which vested remuneration would be clawed back under the proposals in the consultation paper are:
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there is reasonable evidence of employee misbehaviour or material error;
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the firm or the relevant business unit suffers a material downturn in its financial performance; or
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the firm or the relevant business unit suffers a material failure of risk management.
Consistent with the rules on malus, clawback should not be limited to employees directly culpable of malfeasance. For example, in cases involving a material failure of risk management or misconduct, firms should consider applying clawback to those employees who:
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could have been reasonably expected to be aware of the failure or misconduct at the time but failed to take adequate steps to promptly identify, assess, report, escalate or address it; or
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by virtue of their role or seniority could be deemed indirectly responsible or accountable for the failure or misconduct, including senior staff in charge of setting the firm’s culture and strategy.
The proposed rules would come into force on 1 January 2015 and clawback could be applied to awards made before that date but which vest after that date, subject to a six year time limit due to the statute of limitations for contracts.
The consultation closes on 13 May, 2014.
Full news
Consultation paper
© Bank of England
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