ASX 100 malus policies and practices

Having malus provisions for incentives is considered a key element of good governance. There is some evidence that it is effective, especially for certain companies (for example, see HERE).

This article explores the disclosure and criteria of malus provisions in ASX100 companies.

Under the ASX Corporate Governance Council Principles and Recommendations, listed companies are expected to disclose a malus or clawback policy for performance-based remuneration in the event of serious misconduct or a material financial misstatement (see our article the first time it appeared, albeit mis-named, HERE).

Malus is not to be confused with clawback. Malus refers to the reduction of unvested remuneration while clawback refers to the recovery of remuneration that has already vested.

According to Institutional Shareholder Services (ISS), good market practice for performance-related remuneration plans includes provisions that enable companies to recover or withhold payments and specify the circumstances in which this is appropriate. These provisions are expected to extend beyond material misstatements of financial statements.

In addition, the Australian Prudential Regulation Authority (APRA) mandates that entities implement appropriate in-period adjustments, malus, and clawback arrangements under CPS 511. These measures ensure that serious risk issues or misconduct, including those identified years later, are addressed appropriately. APRA emphasises that the severity of adverse risk or conduct outcomes should guide the use of these mechanisms. The Investment Association (IA) in the UK supports broadening malus and clawback provisions beyond gross misconduct or financial misstatements to effectively deter undesirable behaviour, as highlighted by the Royal Commission.

To determine the extent of malus disclosures, we examined the circumstances in which malus applied within ASX 100 companies, as represented in Figure 1 and Figure 2 below.

Figure 1: Distribution of STI malus criteria in ASX100

Figure 2: Distribution of LTI malus criteria in ASX100

Out of the 100 companies:

  • Sixty-seven companies include misconduct as part of the malus criteria for STI and 69 for LTI, while 62 companies include misstatement for STI and 64 for LTI.
  • Twenty-four companies have not disclosed their STI malus criteria, and 20 have not disclosed their LTI criteria.
  • Sixty-two companies have included both misconduct and financial misstatement as criteria for STI malus, while 64 have done so for LTI.

On average, malus provisions more often disclose misconduct as an applicable circumstance than misstatement, while almost a third of companies within the ASX 100 do not account or disclose for either misconduct or misstatement.

© Guerdon Associates 2024
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