Bloomberg News

Banks May Risk Legal Challenges to Bonus Clawbacks, IIF Says

October 20, 2011

Oct. 20 (Bloomberg) -- Banks may risk legal challenges when they attempt to apply rules to claw back bonus payments from staff following poor performance, according to a survey by an association representing global lenders.

The finding is part of a survey of banks’ practices conducted by the Institute of International Finance in collaboration with consulting firm Oliver Wyman. The study found that lenders have made “significant progress” in implementing global standards.

Possible “legal and practical challenges” may apply to both clawbacks of money already paid out and performance-linked reductions in bonuses that have yet to be handed over, the study said. “Performance-linked deferrals” in pay awards “are cumbersome to introduce,” it said.

The introduction of rules requiring lenders to lower pay awards if a firm or individual’s performance is weaker than anticipated was one of several pay principles agreed on by global regulators in April 2009.

The Financial Stability Board said this month that the U.S, Australia, Canada, Hong Kong and Japan allow banks “more flexibility” than European Union countries when implementing the rules. National regulators should address the “level- playing-field” issues, it said.

--Editors: Peter Chapman, Christopher Scinta

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net;

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net;


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