The Association of Mutual Funds in China recently released the "Guidelines for Performance Evaluation and Management of Fund Management Companies." The guidelines clearly state that fund management companies should establish a strict accountability mechanism to enhance the constraints of compensation management, including but not limited to compensation suspension, recovery, and clawback. It is understood that several fund companies are currently studying and drafting performance-based compensation recovery policies. From a system design perspective, if employees engage in performance evaluation fraud, trigger significant risk events, or commit major negligence, or if there are violations in compensation distribution at the company level, it may trigger a performance-based compensation recovery mechanism. This system applies not only to all employees, but also to former employees and retirees. It is worth noting that the clawback system for performance-based compensation is not a new concept in the financial industry, as it has been implemented in the banking sector for many years. Establishing a performance-based compensation recovery system is expected to encourage employees to fulfill their duties diligently and conscientiously, and to strengthen institutional compliance and risk control levels. Additionally, according to industry practices, the clawback system is typically applicable only in cases of major negligence, violations of laws or regulations, or inadequate performance, and public institutions strictly limit the scope of application in the design of the system to prevent abuse. Many mutual funds are studying the establishment of performance-based compensation recovery policies According to several industry insiders, many mutual fund management companies are currently studying and drafting relevant performance-based compensation recovery policies. According to insiders, in terms of system design, if an employee fails to fulfill their duties or commits major negligence, it will trigger the performance-based compensation recovery mechanism. Additionally, if an employee's behavior leads to a significant risk event with significant negative consequences, the performance-based compensation will be proportionally recovered based on the severity of the impact. Furthermore, if there are violations in the distribution of compensation at the company level, or if an employee falsifies assessment data, the individuals involved will also be required to undergo performance-based compensation recovery. It is worth noting that the performance-based compensation recovery system applies not only to all employees, but also to former and retired personnel. Industry insiders pointed out that the research and development of these systems by many mutual funds have clear policy bases. In May of last year, the China Securities Regulatory Commission issued the "Action Plan for Promoting the High-Quality Development of Public Funds." The plan proposed strict implementation of the deferred payment of performance-based compensation for executives and key personnel of fund companies, and the recovery of compensation for individuals responsible for serious violations in accordance with the law. In April of this year, the Asset Management Association of China released the "Guidelines for Performance Evaluation and Management of Fund Management Companies". The guidelines require fund management companies to establish a strict accountability mechanism to enhance the constraints of compensation management, including but not limited to compensation suspension, recovery, and clawback. A source familiar with the matter told reporters, "Establishing a system for performance-based compensation recovery is mainly to patch up the existing compensation assessment system of the company. On one hand, regulatory policies clearly outline the requirements; on the other hand, some companies in the industry have had cases of compensation retractions in the past, which has made other institutions realize the need to improve relevant systems. After improving the system, if there are subsequent management reform requirements from higher authorities or shareholders, a complete system can ensure that the work of recovery of performance-based compensation can be implemented." "The constraint of compensation retractions" encourages key personnel to diligently fulfill their duties For public fund institutions, the establishment of a performance-based compensation recovery system has far-reaching effects, which can pressure employees to be more diligent in carrying out their duties and support the high-quality development of the industry. A senior compliance officer from a public fund told reporters, "Improving the performance-based compensation recovery system is also beneficial to the company's management. Through the constraints and deterrence of 'rebounding compensation', it is expected to curb non-compliant behaviors and help improve the institution's compliance and risk control capabilities." It is worth noting that the performance-based compensation recovery system is not a new concept in the financial industry, as it has been implemented in the banking sector for many years. As early as 2010, the China Banking Regulatory Commission issued the "Guidelines for Prudent Compensation Supervision for Commercial Banks," which stipulated that commercial banks should establish regulations for the postponement and recovery of performance-based compensation. If the risk exposures within the prescribed period by its senior management and related employees exceed the norm, the commercial bank has the right to recover all performance-based compensation already paid within the specified period and to suspend all unpaid parts. Listed banks will also disclose the amount of performance-based compensation recovery in their annual reports. Taking the Bank of China as an example, in 2025, the bank implemented a total of 4630 clawbacks involving an amount totaling 47.1782 million yuan. However, despite the years of practice in the banking industry, many employees in the mutual fund industry still have concerns about this system. In response, a human resources professional from a mutual fund institution involved in the development of the performance-based compensation recovery system told reporters, "The system of performance-based compensation recovery is not a new concept, as it has been practiced in both the banking and securities industries. Based on industry norms, the recovery of performance-based compensation is only initiated in cases of major negligence, performance fraud, violations of laws or regulations, and lack of diligence. In the process of formulating relevant systems, we have strictly specified the applicability of performance-based compensation recovery to prevent abuse and avoid causing panic among employees." This article is reproduced from "Cailian Press," GMTEight Editor: Xu Wenqiang.