25 October 2016
Standard Chartered plans to recover the bonuses of up to 150 senior staff if they are found culpable of breaching internal rules. Photo: Bloomberg
Standard Chartered plans to recover the bonuses of up to 150 senior staff if they are found culpable of breaching internal rules. Photo: Bloomberg

StanChart plan to claw back bonuses faces hurdles

Standard Chartered’s landmark attempt to claw back bonuses paid to staff deemed responsible for its current woes could be fraught with practical and legal difficulties, lawyers and investors said.

Chief executive Bill Winters said on Tuesday the bank could recover the bonuses of up to 150 senior staff, if they are found culpable of breaching internal rules during a freewheeling lending era under his predecessor Peter Sands, who left last June, Reuters reported.

Last year Britain issued tough rules, as a response to the financial crisis, allowing banks to seek recovery of bonuses from bankers deemed to have acted irresponsibly up to 10 years after they are paid out.

Lawyers said it would be the first time a bank has sought such clawbacks en masse since the new regulations were put in place.

Attempts to recover bonuses have so far been rare, and have focused on individuals accused of clear misconduct.

Winters’ announcement of “robust accountability reviews” came as StanChart reported its first annual loss in 26 years, with bad loans jumping from US$7.5 billion at the end of 2014 to US$12.8 billion by the end of 2015.

Lawyers familiar with laws governing banker pay said the key distinction was between so-called malus – the cancellation of an intended future payment – and clawbacks, where a bank tries to recover monies already paid out.

The latter is much harder to enforce.

“Even if you have a very well crafted clawback clause, it can be hard in practice to demonstrate that an individual’s behaviour has led to a particular result,” said Anna McCaffrey, senior associate in the employment practice at Taylor Wessing.

Clawbacks face several other challenges, including the difficulty of claiming back funds where a banker has moved to another part of the world or another company.

The Bank of England proposed new rules in January to close the loophole for such so-called “roving bad apples” but they are not yet in force so would not apply to the StanChart plan.

Winters said on Tuesday that some former senior executives at the bank had already paid a price for the lender’s problems, without naming them.

Long-term share incentives awarded in 2013 expired worthless after some senior executives failed to meet performance targets, the bank’s annual report said.

Former finance director Richard Meddings and former consumer banking head Steve Bertamini were among those who failed to meet performance measures and saw those incentives lapse, according to the report.

StanChart has also held back a total of US$61 million worth of unvested shares pledged to senior managers and “risk takers” such as traders and loan officers in 2015 due to “performance adjustments”, according to a Reuters calculation from the company’s annual report.

Unvested shares are those that will be awarded at a future date, subject to conditions.

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