Search

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

Revisiting our Compensation Recovery Policy

In 2006, the Board of Directors adopted a Compensation Recovery Policy, pursuant to which members of management (including the CEO, the CFO and the NEOs) may be required to return compensation paid based on financial results that were later restated. This policy applied only if the executive officers engaged in misconduct that contributed to the need for a restatement, or contributed to the use of inaccurate metrics in the calculation of incentive compensation. Under this policy, when the Board determined in its sole discretion that recovery of compensation was appropriate, the Company could require reimbursement of all or a portion of any bonus, incentive payment, commission, equity-based award or other compensation, to the fullest extent permitted by law.

In addition to this Compensation Recovery Policy, the company's executive officers and other key employees have entered into agreements requiring the forfeiture of proceeds from some or all of their long-term incentive awards received up to two years prior to their termination of employment, if the former executive or employee engages in conduct that is detrimental to the Company, such as working for the company's competitors, soliciting the Company's customers or employees after employment ends and disclosing the Company's confidential information.

In light of the risk assessment undertaken by the Compensation Committee discussed on page __ of this Compensation Discussion and Analysis, the Compensation Committee has reconsidered the Company's Compensation Recovery Policy, seeking to ensure that the policy maximizes the ability of the Company to recoup compensation obtained through actions on the part of management which may ultimately prove detrimental to the Company and its shareholders. In this regard, the Compensation Committee has determined that limiting the possibility of recovery only to instances of misconduct resulting in restatement of financial results, or to certain post-termination activities, does not fully reflect the panoply of potential activities which should result in a return of compensation to the company.

Based on the Compensation Committee’s recommendation, the Board of Directors has adopted a revised Compensation Recovery Policy that provides for the recovery of any annual or long-term incentive compensation paid to our executives (not limited to the amounts where payout or vesting has been deferred) (1) where recovery is necessary to reflect the longer term results of their performance, which may not be fully known or understood immediately following the completion of the performance period, or (2) in the event that the executives subsequently engage in conduct that is detrimental to the company. Conduct considered detrimental to the Company may include, but is not limited to, the need for a restatement of results, a significant financial loss, actions, decisions or strategies that were not in the company's long-term best interests or other reputational harm to the Company. This revised policy requires reimbursement of all or a portion of any bonus, incentive payment, commission, equity-based award or other compensation that is determined by the Compensation Committee to be recoverable, to the fullest extent permitted by law, as a result of the detrimental conduct. We believe that the Compensation Recovery Policy should be sufficiently broad to allow our Compensation Committee, in its sole discretion, to address situations where executives pursued strategies and took actions that (e.g., as a result of excessive risk-taking or poor performance or what, in hindsight, were bad or flawed strategies) should not have been rewarded.

In order to ensure the enforceability of the revised Compensation Recovery Policy, appropriate language regarding the policy is to be inserted in applicable documents and award agreements. In addition, notwithstanding any current employment agreements, the board and the CEO and our management team view this as so fundamental that we are pleased to report that our CEO and NEOs have agreed to the application of these new provisions retroactively.

Back to Top