Video Friday: Clawback Invoked

With the passage of the Dodd-Frank and the Sarbanes Oxley Acts, clawback policies have become increasingly prevalent among public companies. However, it is rare to find a company actually put a clawback policy into effect. Citing Equilar’s findings from the 2012 Clawback Policies Report, we review what a clawback policy is and we examine what triggered one major U.S. bank to put their clawback policy into action.

Table of    ContentsAmong the many changes the Dodd-Frank Act has brought to the world of executive compensation, clawback policies remain one of the most complex and least understood provisions. The last two years have shown an increasing number of companies describing clawback policies within their proxies. And more recently we’ve seen companies such as JPMorgan actually invoking clawbacks in response to adverse business results to fend off criticism of its $3 billion, or so, in trading losses. The bank said it would restate its earnings for the first three months of this year. The numbers indicate just how significant clawbacks are to companies and their executives:

  • 86% of Fortune 100 companies have publicly disclosed clawback policies
  • 49% of clawback triggers for Fortune 100 companies are related to financial restatement and ethical misconduct
  • 67% of clawback policies are targeted towards key executives

http://www.youtube.com/watch?v=iTx9NOqL-XU&feature=player_embedded

Dodd-Frank legislation bars companies from being listed on public stock exchanges unless they have a policy to recoup incentive-based compensation, including stock options, for current and former executives over a three-year period. The SEC is currently drafting applicable regulations.

J.P. Morgan  plans to recoup two years of compensation from Ina Drew, the former chief investment officer who resigned in May. She earned just under $30 million in 2011 and 2012. The bank may also seize compensation from three traders in the London office but the bank has said nothing about ny clawback from its CEO, Jamie Dimon.

Only about 10% of companies demand repayment based strictly on the existence of a restatement, no matter the reason. Boeing (BA) and United Parcel Service (UPS) are among the corporate giants that have registered such policies in securities filings. (Executive pay clawbacks: Just a shareholder pacifier?, Fortune, 8/16/2012)

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