The NASPP Blog

For the past few years, in the months leading up to the NASPP Conference, we have featured guest blog entries from some of our Conference speakers.  This week we feature our first guest blog entry for the 20th Annual NASPP Conference, by Michael Melbinger of Winston and Strawn, who will lead the session “Issues and Answers on Clawback Provisions.”

Issues and Answers on Clawback Provisions
By Michael Melbinger of Winston & Strawn

A couple of weeks ago the subject of compensation clawbacks burst onto the front pages and into lead stories at newspapers and TV stations all over the country, as a result of JP Morgan Chase’s difficulties. Our scheduled presentation on “Issues and Answers on Clawback Provisions” at the 20th Annual NASPP Conference in New Orleans suddenly got a whole lot more interesting and we are glad to be starting this blog to track thoughts and developments in the meantime.

Compensation clawback provisions have a long history and were developing nicely as a best practice for compensation committees before Dodd-Frank Act Section 954 made them the law of the land (pending the issuance of final rules by the SEC and revised listing standards by the stock exchanges). Reasonable minds, regulators, and courts are differing about how best to handle the design, taxation, and enforcement of clawback provisions.

Mark Poerio, Amylynn Flood, and I will focus our NASPP presentation on the many difficult legal and practical issues raised by a compensation clawback policy, including:

• Documentation and drafting requirements,
• Legal enforceability issues under state and foreign law,
• Establishing procedures for applying the clawback policy,
• The accounting consequences of a clawback to the company,
• Problematic real-life scenarios for the board and the employees,
• The continued applicability of Sarbanes Oxley Act to clawback provisions,
• What forms of incentive compensation should be affected by the clawback,
• The availability of D&O insurance and indemnification for clawback targets,
• Deciding which employees the compensation clawback policy should cover,
• The impact of the Dodd-Frank whistleblower bounties on future restatements and clawbacks,
• The tax consequences of a clawback to the employee and the company (Code Sections 1341 and 409A),
• Possible unintended consequences from the Dodd-Frank clawback provisions and their implementation,
• The use of “holdbacks” and deferrals to implement and enforce a clawback policy (see also, Dodd-Frank Act Section 956),
• The types of shareholder and employee litigation that are certain to result from a compensation clawback–or the lack of one, and
• Balancing the interests of the employees and the company in designing a clawback policy, including protecting employees against an unjust clawback (complete with examples of unjust potential clawback scenarios).

If, as expected, the SEC has proposed rules under Dodd-Frank Section 954 by the time of the NASPP Conference, we will examine those rules in detail–as well as the open issues that are sure to remain under the rules.

Our panel, “Issues and Answers on Clawback Provisions,” is certain to be a “Can’t Miss” session at the 20th Annual NASPP Conference in New Orleans.

Last Change for Early-Bird Rate on M&A Course
The early-bird rate for our online program “Tackling Equity Compensation Issues Related to Mergers & Acquisitions” ends this Friday, June 8.  We’ve already extended this rate once; we won’t extend it again.  Don’t miss out–the next time your company is involved in a deal, you’ll be glad you took this course. 

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so we keep an ongoing “to do” list for you here in our blog.