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ACCA Strategic Professional · Advanced Performance Management · Performance and reward

Mirelle plc introduces a clawback provision in its executive bonus scheme. Which situation is the clawback provision most directly designed to address?

Clawback is designed to recover bonuses already paid when the underlying results are later restated downwards due to misstatement or misconduct. It discourages manipulation of reported performance, because executives know that unjustified rewards can be reclaimed by the company.

  1. ABonuses paid on profits that are later restated downwards because of misstatement or misconductCorrect
  2. BExecutives leaving the company before options vest
  3. CShare price falling below the option exercise price
  4. DEmployees demanding higher fixed salaries after inflation

Explanation

Clawback allows the company to recover bonuses already paid where results are subsequently shown to be misstated or where misconduct occurred, which discourages manipulation of reported figures. It does not deal with leavers, underwater options or salary demands.

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