The increasing spotlight on clawback and malus

  • Clawback and malus clauses are types of contractual provisions that allow a company to reduce or recover remuneration from an employee.
  • Clawback and malus provisions came to prominence following the global financial crisis, and are now being given broader application.
  • Malus is more prominent as challenges regarding the enforceability of clawback have been a barrier to its utilisation as a governance tool.

Following the AUSTRAC action against the Commonwealth Bank of Australia (CBA), the CBA board reduced the short-term variable remuneration for the CBA executive team to zero. Shortly after Woolworths announced it had underpaid certain employees, the CEO announced he would forego his bonus. During the banking royal commission the Australian Financial Review Chanticleer column editorialised that it was ‘time for a banker bonus clawback’. 

Reducing an executive’s variable remuneration is becoming part of how organisations demonstrate accountability by holding executives to account for poor conduct. ‘Clawback’ and ‘malus’ mechanisms are two tools used to effect these remuneration reductions.

As remuneration increasingly becomes an accountability tool, it is important that companies have the contractual ability to reduce or recover remuneration, either individually or collectively across a group of employees. 

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