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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

Which statement best describes a clawback provision in an executive incentive scheme?

A clawback provision lets the company recover remuneration already paid or vested if later events, such as financial misstatement or misconduct, show the reward was not deserved. It strengthens accountability and discourages excessive risk-taking, and differs from malus, which only reduces awards not yet paid.

  1. AIt lets executives exchange their options for cash at any time
  2. BIt allows the company to recover bonuses already paid if later events such as misstatement or misconduct ariseCorrect
  3. CIt fixes the exercise price of options at the current market price
  4. DIt prevents the board from ever changing performance targets
  5. It doubles the bonus if profits exceed target

Explanation

Clawback is a recovery right over remuneration already paid or vested, triggered by events like restated accounts or misconduct. Malus, by contrast, reduces unvested awards. The other options describe unrelated features.

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