The remuneration of board members is and remains a sensitive issue. High bonuses always cause discontent among the public – especially in cases where shareholders, creditors or the general public are suffering from a corporate crisis and the payments simply no longer “fit” in the public eye. In such situations, there is often a call for a reduction or clawback of board bonuses. Prominent triggers for these debates were the financial market crisis and the “emissions scandal” at Volkswagen. But not only the public, but also institutional investors and voting rights advisors are now paying very close attention to how board members are paid.
It is therefore standard practice in most compensation systems today to withhold or reclaim variable components. Malus and clawback clauses ensure this. They give the company the opportunity to reduce variable remuneration components that have not yet been paid out (malus) or to demand back amounts that have already been paid out (clawback). This is intended to limit false incentives and ensure dutiful behavior through financial consequences.
The current trends in clawback clauses in executive compensation systems are presented below. The basis is an evaluation of selected compensation systems of DAX, MDax and SDax companies from the pharmaceutical and chemical industries.
Background to the development of clawback clauses
The main drivers for the introduction of clawbacks into the remuneration systems of listed German companies are, in addition to the pressure from international investors and institutional voting rights advisors, and above all increased requirements under stock corporation law. After the implementation of the second shareholder rights directive (ARUG II), companies must, in accordance with Section 87a of the German Stock Corporation Act (AktG), transparently explain in their remuneration system whether there are opportunities to reclaim variable remuneration components.
Correspondingly, Section 162 Paragraph 1 No. 4 AktG requires specific information in the annual remuneration report as to whether and to what extent these reclaim options have actually been used. This development is supported by the German Corporate Governance Code (DCGK), which has also recommended the reclaiming of variable remuneration since 2019.
The design of clawback clauses
Executive board compensation usually consists of a fixed base salary and variable components. The variable compensation components are usually linked to the achievement of certain business goals. There are different reasons for the company to demand back variable remuneration that has already been paid out. In order to avoid false incentives and to be able to react to later developments, the remuneration systems provide for appropriate clawback mechanisms. Depending on the reason for the reclaim, a distinction is made between two basic types: the (behavior-related) compliance clawback and the (success-related) performance clawback.
Compliance-Clawbacks
Compliance clawbacks enable the company to reclaim variable compensation components that have already been paid out if the board member has culpably violated legal or internal obligations. Since these clauses are actually based solely on the individual behavior of the board member – and not on the company’s success or objective financial indicators – they are also referred to as “personal” or “behavior-related” clawbacks.
The threat of repayment is intended to deter board members ex ante from undesirable behavior or breaches of duty. It is irrelevant whether the company suffered any specific economic damage. It is therefore not primarily a question of mathematically correcting a performance bonus that was wrongly received. Rather, misconduct should be sanctioned with noticeable financial consequences.
The Code of Conduct
In practice, the chosen starting points are diverse. Although it is generally linked to a culpable breach of duty, the specific requirements for the sanctioned behavior can vary from clause to clause. Companies often use the opportunity to contractually expand the set of obligations and, for example, include violations of the company’s own “Code of Conduct” as part of the offense.
Overall, companies have many options for tailor-made solutions here. For example, it says that the company is entitled to “withhold the variable remuneration in whole or in part if the members of the Executive Board violate their duties in accordance with Section 93 AktG or if there are breaches of duty that would justify termination for good cause (Section 626 BGB)” (Brenntag AG Compensation Report 2024, p. 259).
Other regulations focus even more on your own company values and use internal rules of conduct to make them more specific. Sanctions are directly linked to “serious violations of the Code of Conduct” (BASF SE Remuneration Report 2024, p. 8).
Performance-Clawbacks
In contrast to compliance clawbacks, performance clawbacks are not linked to the individual behavior of the board member, but to objective key figures. The reclaim is linked to economic and balance sheet values. What is important is not the performance of the individual board member, but the actual company performance.
Such a claim for repayment arises if it subsequently becomes apparent that the variable remuneration was paid out on the basis of incorrect data or that economic development proves to be unsustainable. Unlike compliance clawbacks, personal culpability on the part of the board member is not required.
In the compensation systems analyzed, performance clawbacks typically take effect when relevant key figures have to be corrected subsequently and this would have resulted in a mathematically lower payout amount. This particularly applies to cases in which there is a violation of financial reporting or the annual financial statements have to be subsequently corrected due to originally incorrect data.
Various starting points can be observed in practice. In some cases, the focus is specifically on correcting key figures. The regulation applies if “essential key figures had to be subsequently corrected due to objective errors (…) and if the corrected key figures were used, no or lower remuneration would have resulted” (FUCHS SE Compensation Report 2024, p. 8).
Another starting point is the formal qualification. Here, the clauses are linked to an “audited and approved consolidated financial statement (…) that was objectively incorrect”, provided that no or a lower claim to payment of variable remuneration components would have arisen based on the corrected consolidated financial statements (Sartorius AG Compensation Report 2024, p. 238). Those regulations that are generally based on incorrect data are even broader. In these cases, the performance clawback already applies if the calculation and payout were based on incorrect data (Covestro AG Compensation Report 2024, p. 258).
Conclusion
Clawback clauses are now the market standard in remuneration systems of listed German companies. They serve as an incentive for law-abiding behavior and at the same time to sanction breaches of duty by board members. This means they act as an effective lever for corporate compliance. But even if a compliance violation has already been committed, such regulations lead to a fairer distribution of the economic consequences of the misconduct.
Since the effects of irregular actions often only become visible after the assessment period for variable remuneration has expired, the economic disadvantages would be passed on one-sidedly to the company owners without appropriate regulations. Clawbacks correct this and ensure that board members are also appropriately involved in the negative consequences of short-sighted or particularly risky decisions.
(The article was first published in our sister medium Deutscher RechtsanwaltSpiegel, issue 4/2026.)
Author
Leon Winkler
