Clawback and Malus Provisions in the U.S. and Brazil: A Comparative Overview

In today's corporate governance landscape, clawback and malus provisions have become key tools for promoting accountability and integrity. By incorporating these provisions, companies aim to align executive actions with the long-term interests of the company and its shareholders.

A "clawback” or “malus” provision enables a company to recover previously paid compensation (either by requiring repayment or reducing future compensation) or trigger forfeiture of unpaid compensation if it is found that the grant or payment of such compensation was based on erroneous financial data or if the recipient engaged in misconduct. For example, if a bonus was paid based on financial results that were subsequently restated, the company could invoke a clawback provision to recover the bonus (or the portion that exceeds the amount that would have been paid had the correct financial results been known when the bonus was paid). The specific conditions under which clawback and/or malus provisions apply depend on local regulatory requirements and company-specific policies, as further discussed.

This article compares adoption of clawback and malus provisions by companies the securities of which are listed in the United States and Brazilian markets and the rules and outlook for these provisions in each jurisdiction.