On 28 September 2016, the Prudential Regulation Authority (PRA) published a policy statement which finalised new rules for the treatment of buy-out awards.
The rules come into effect from 1 January 2017 via amendments to the PRA Rulebook. They should be applied when an employee with Material Risk Taker (MRT) status at a level one or two firm moves to a new company that is also subject to the PRA Rulebook.
The rules state that:
- When an employee serves notice on their employment, the firm must provide the leaving individual with a 'remuneration statement' within 14 days
- The remuneration statement must contain prescribed information relating to awards made when the individual had MRT status, including details of the terms that apply (deferral, post-vesting retention, malus and clawback)
- The new employer must ensure the buy-out award is subject to malus and clawback on similar terms
- The old employer must then notify the new employer when malus and clawback should be applied to their previous employee
been working with clients to understand the implications of these new
requirements on their leaver processes and record keeping; and we’re ready to
support the requirement to create and distribute remuneration statements to
What can you do to make sure you're prepared?
Consider data retention periods for information on MRTs in order to produce remuneration statements when needed
Check with HR/Legal that employment contracts allow buy-out rules to be applied – implement changes or side letters if required
Update your leaver processes to ensure the 14 day timeline for remuneration statements are taken into account
Malus and clawback
Review your processes for the application of malus/clawback to ensure you contact new employers when an old employee is caught by a performance adjustment