Senior Manager Pay: Variable Remuneration, Malus and Clawback Explained

Why Pay Is Regulated

After the financial crisis, regulators concluded that pay structures had encouraged excessive risk-taking. Short-term bonuses rewarded revenue and profit without regard to the risks taken to achieve them, and there was little way to recover pay when those risks later materialised. The response was a set of Remuneration Codes that tie variable pay more closely to long-term performance and risk.

The rules sit in the FCA’s systems and controls sourcebook, SYSC, with different Remuneration Codes for different types of firm, including banks and building societies, MIFIDPRU investment firms, and fund managers. Dual-regulated firms are also subject to the PRA’s remuneration rules. How much of the detail applies depends heavily on the firm’s size and type, and smaller firms often apply the rules proportionately.

The Key Concepts

Material Risk Takers

The most detailed rules usually apply to staff whose work can have a material impact on the firm’s risk profile, often called material risk takers. Senior Managers are almost always in this group at firms where the rules apply.

Variable Pay and Performance Adjustment

Variable pay, such as bonuses and long-term incentives, is expected to reflect performance measured over time and adjusted for risk. Non-financial measures, including conduct, compliance and customer outcomes, should play a real part, not just financial results.

Deferral

For those in scope, a portion of variable pay may need to be deferred over several years rather than paid immediately. Deferral gives the firm time to see whether the performance it rewarded was sustainable.

Payment in Instruments

Some rules require part of variable pay to be delivered in shares or other instruments linked to the firm’s long-term value, rather than cash.

Malus

Malus allows the firm to reduce or cancel variable pay that has been awarded but not yet paid or vested, for example if misconduct comes to light or the firm’s performance deteriorates significantly.

Clawback

Clawback allows the firm to recover variable pay that has already been paid, typically in cases of serious misconduct or material failures, within a set period after payment.

How This Affects Senior Managers

Conduct Affects Pay

Remuneration committees are expected to consider conduct when setting variable pay. A Senior Manager whose area has suffered a significant failing may see their variable pay reduced even if financial targets were met. This links directly to the Senior Managers regime: a breach of the Conduct Rules can have consequences for both regulatory standing and pay.

Long Tails

Because of deferral and clawback, a Senior Manager’s pay for a given year may not be fully settled for several years. Candidates weighing an offer need to understand not only what they’ll be paid, but when, and on what conditions.

Remuneration Committee Scrutiny

At larger firms, the chair of the remuneration committee may hold a Senior Manager Function, and the committee is expected to oversee how pay policies work in practice. SMF Capital’s guide to the SMF12 Remuneration Committee Chair explains what the regulator expects of that role.

Moving Firms: Buy-Outs

When a Senior Manager moves between firms, they often leave behind unvested deferred awards. New employers frequently offer to “buy out” those awards to make the move possible. Buy-outs raise particular issues in regulated firms:

• they can be expensive, and need to be factored into the overall package
• at firms subject to the more detailed rules, buy-out awards may need to replicate the deferral and performance conditions of the awards they replace, rather than paying out in cash immediately
• awards bought out may remain subject to malus or clawback relating to conduct at the previous firm
• timing matters, because awards may lapse on resignation or when notice is given.

Firms and candidates should discuss buy-outs early. Late surprises about lost awards are one of the most common reasons senior offers fail. Regulatory references from the previous firm may also be relevant, since they can disclose conduct matters that affect the buy-out.

Smaller Firms and Proportionality

Many smaller regulated firms apply only the core principles of the Remuneration Codes, without the detailed deferral and instrument requirements. They still need a remuneration policy that doesn’t encourage excessive risk-taking and that considers conduct and customer outcomes. The Consumer Duty reinforces this: incentives that drive poor customer outcomes, such as sales targets without quality checks, are a regulatory risk regardless of firm size.

Designing Packages for Senior Managers

For firms, a well-designed Senior Manager package balances several aims: attracting strong candidates in a competitive market, complying with the applicable rules, and rewarding the behaviour the firm actually wants. Useful questions include:

• Which Remuneration Code applies, and to what extent?
• What proportion of pay should be fixed and variable for this role?
• Do performance measures include conduct, risk and customer outcomes, not just financial results?
• How will malus and clawback operate in practice, and are they in the contract?
• How will buy-outs be handled for candidates moving from other regulated firms?

For control function roles, such as compliance and MLRO and chief risk officers, variable pay should not depend on the performance of the business areas they oversee, since that would undermine their independence.

Fractional and Interim Senior Managers

Fractional and interim Senior Managers are usually paid a day rate or retainer rather than a salary and bonus. That avoids most of the complexity of variable pay, but firms should still think about incentives. A fractional compliance officer or MLRO paid by the day has no incentive tied to the firm’s sales, which supports their independence. Firms should avoid arrangements, such as success fees linked to authorisation or growth targets, that could compromise that independence or create conflicts the regulator would question.

What Candidates Should Ask

• How much of the package is fixed, and how much variable?
• What performance measures apply, and how is conduct taken into account?
• How much variable pay is deferred, for how long, and in what form?
• What are the malus and clawback provisions?
• Will the firm buy out forfeited awards, and on what terms?

Market Benchmarks

Senior Manager pay varies widely by designation, firm size, sector and location. For current benchmarks, SMF Capital publishes an analysis of what SMF roles actually pay in 2026, and Exec Capital, a sister practice, publishes an SMF salary guide. For board and C-suite appointments at larger firms, Exec Capital’s FCA-regulated executive search team advises on packages as part of each search.

The Bottom Line

Remuneration rules mean that Senior Manager pay in regulated firms is closely tied to long-term performance, risk and conduct. For firms, that means designing packages that attract strong candidates while meeting the rules. For candidates, it means understanding deferral, malus, clawback and buy-outs before accepting an offer. Both benefit from discussing these issues early. This article is general information, not legal or tax advice, and the detail of the rules varies significantly between types of firm.