Back to basics: Tax implications of clawbacks

Clawback of bonuses and share awards is very much a hot topic at the moment especially in the financial services sector. This started in the US with the ‘Dodd-Frank’ legislation which required clawback in the case of financial restatement of accounts. It was followed by the European Capital Requirements Directives which included concepts of clawback and malus adjustments.

Here in the UK the Financial Services Authority (FSA) remuneration code requires financial institutions to reduce ‘unvested deferred variable remuneration’ in cases of employee misbehaviour material downturn and material failure of risk management. We have also seen companies outside this sector particularly the FTSE 100 including these types of provisions in their scheme rules and operating them in several high...