23 February 2022
Barclays PLC announced it has “frozen” all of their former CEO’s unvested share awards. We do not normally see share plan stories in the press, so there are useful reminders for all companies in the detail behind the headline.
What has the bank said?
The bank announced in a statement: “In line with its normal procedures, the committee exercised its discretion to suspend the vesting of all of Mr Staley's unvested awards, pending further developments in respect of the regulatory and legal proceedings related to the ongoing Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) investigation regarding Mr Staley.”
Why has this happened?
There are ongoing legal and regulatory investigations regarding connections between former Barclays boss Jes Staley and Jeffrey Epstein.
Separately, the PRA and FCA expect certain firms to freeze the vesting of all awards made to individuals undergoing internal or external investigation that could result in performance adjustments, such as the application of malus and clawback. This is set out in PRA and FCA guidance available in full here and here.
It is also worth noting that the PRA and FCA expect certain firms to be able to extend the clawback periods for certain senior MRTs, where there are ongoing investigations that might lead to the application of clawback. This is set out in the Remuneration part of the PRA Rulebook at 15.20A here, and the FCA Handbook at SYSC 19D.3.61(4) here.
Why does this matter - the broader share plans picture?
Whether we are talking about financial services firms or not, malus and clawback are always a hot topic for executive share awards.
One area that can be overlooked is the impact of ongoing investigations that might result in malus or clawback being applied to awards.
It is widely accepted that malus (reducing or cancelling unvested or unpaid awards) is easier to enforce than clawback (recovering vested or paid awards). Where investigations are ongoing, suspending the vesting of awards is a useful way to extend the period during which malus can be operated. Companies could also extend the applicable clawback period in these circumstances, where necessary.
Companies should ensure they have a clear and robust contractual basis to suspend the vesting of awards and extend clawback periods in these circumstances. This can be achieved through carefully drafted “investigation provisions” in share plan rules and malus and clawback policies.
It is not often that we see share plans hitting news headlines – so whenever this happens it is always important to see if any lessons can be learned.
For impacted PRA and FCA regulated firms, this is a useful reminder of the PRA’s expectations when investigations are taking place that might result in performance adjustments - all unvested awards should be frozen until the investigations conclude. In addition, clawback periods for certain MRTs should be extendable where investigations that might lead to clawback are ongoing.
More generally, any companies with malus and clawback provisions should ensure that their plan rules and/or malus and clawback policies clearly provide for the suspension of vesting in the event of investigations, whether internal or external. Companies may also want the power to extend the applicable clawback period in these circumstances.
If you have any questions on the above, or need any help with your own “investigation provisions”, please do get in touch.
Matthew Hunter and Tom Parker