Dana Whitfield· Director, Global Compensation, Meridian Health Systems
Asked in Executive Compensation ·
I work for a mid-sized Canadian bank. Our clawback policy covers what regulation requires: a material restatement, and misconduct by the individual. The committee wants to widen it after an incident at another institution, and the list being discussed is long: reputational damage, risk management failure, failure of supervision, and material error in a performance calculation without any restatement.
My concern is that broad triggers which are never used are worse than narrow ones that are. Counsel also warn that recovering vested and paid amounts is far harder than cancelling unvested ones.
Which triggers do you have, and has any of them actually been applied?
0 reactions · 5 replies · 3 views
Accepted answer· by Priya Raghunathan
The structure that has held up for us is two tiers. Unvested and deferred pay can be reduced on a wide list: risk failure, supervisory failure, calculation error, serious breach of the code of conduct. Paid amounts can be recovered on a narrow list only: restatement, fraud, and gross misconduct, within three years of payment. We also wrote a short procedure: who investigates, who recommends, the individual's right to respond, and a default reduction range for each trigger. The procedure matters more than the list. Without it a committee facing its first case has nothing to work from.
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Nadia HaddadCRP
Director of Rewards, MEA, Qasr Holdings
European bank here. We have all of those and more. In eight years malus on unvested awards has been applied eleven times, almost always for supervisory failure after a conduct finding. Clawback of paid amounts has been applied once and took two years. So yes to the triggers, but be honest internally about which half of the policy does the work.
James OkaforCRP, CEP
VP, Total Rewards, Halcyon Financial Group
Reputational damage is the one I would push back on. We had it, and when a real case came the committee spent three meetings arguing about whether bad press counted as damage. We replaced it with a trigger tied to a regulatory sanction or a finding by internal audit, which someone other than the committee determines.
Priya RaghunathanGRS, CSI
Head of People Analytics, Calibre Software
Accepted answer
The structure that has held up for us is two tiers. Unvested and deferred pay can be reduced on a wide list: risk failure, supervisory failure, calculation error, serious breach of the code of conduct. Paid amounts can be recovered on a narrow list only: restatement, fraud, and gross misconduct, within three years of payment.
We also wrote a short procedure: who investigates, who recommends, the individual's right to respond, and a default reduction range for each trigger. The procedure matters more than the list. Without it a committee facing its first case has nothing to work from.
Nadia HaddadCRP
Director of Rewards, MEA, Qasr Holdings
One practical point outside banking. A wide malus tier only works if there is deferred pay to reduce. At our company the bonus is paid fully in cash, so the committee introduced a one third deferral into shares for two years at the same time as the new triggers. Otherwise the policy would have had nothing to bite on.
Nadia HaddadCRP
Director of Rewards, MEA, Qasr Holdings
This is what I needed. Going to the committee with the two-tier structure, a sanction-based trigger in place of reputational damage, and a draft procedure. We already defer 40% of bonus for the executive team so the malus tier has something behind it.
