Clawback triggers beyond a restatement: how far has your committee gone?

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.

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.

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.

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.