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The Corporate Executive, Vol. XXIII, No. 1
January-February 2009

Making the Most of Clawback Provisions

Clawback policies (and such provisions in executive compensation arrangements) are being adopted with increasing frequency, as companies seek to ensure that executives are not in a position to keep compensation that was awarded based on what later turns out to be erroneous financial results. Section 304 of the Sarbanes-Oxley Act originally focused significant attention on clawback policies, and now the presence of broader clawback provisions as part of the TARP has reignited interest in clawbacks as an effective means for discouraging inappropriate conduct. In the current climate, even those companies that have already adopted clawback policies and provisions need to re-evaluate those measures, because the triggering events may be too narrow and fail to deal with circumstances where it turns out—after compensation decisions have been made—that the executive has engaged in conduct which ultimately harms the company and shareholders.

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