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.”
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.
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.
Don’t miss your local NASPP chapter meetings in the Carolinas, DC/VA/MD, Ohio, Seattle, and Silicon Valley. Barbara Baksa will be at the Silicon Valley chapter meeting–be sure to say hello.
It’s been months since I last discussed anything related to the Dodd-Frank Act so in today’s blog, I provide an update on SEC rulemaking related to the Act.
More Delays
The SEC recently updated its calendar for rulemaking activities pertaining to Dodd-Frank to delay a number of projects, including:
Requirements for companies to adopt clawback policies for compensation paid to executives.
Disclosure of the ratio of CEO pay to the median pay of all employees.
Disclosure of the relationship of executive compensation to corporate financial performance.
Disclosure of hedging policies for employees and directors.
Final rules on these projects are now scheduled to be issued no earlier than July and possibly as late as December 2012. This means we won’t have final rules in time for this year’s proxy season (but you had probably already figured that out for yourself). The SEC expects to issue proposed rules during the first half of 2012.
Accredited Investors
The SEC has amended the definition of an “accredited investor” to exclude the value of primary residences from net worth. This is an important definition under Regulation D, which provides a number of exemptions from registration for offerings of stock, some of which limit the number of nonaccredited investors that can participate in the offering.
Next up, the SEC is set to finalize rules prohibiting “bad actors” from participating in Rule 506 offerings. At first I thought this meant that Pauly Shore and David Caruso wouldn’t be able to participate in unregistered offerings, but it actually relates to felons and others that have been convicted of or sanctioned for securities fraud and similar activities.
These changes probably don’t impact the operation of most companies’ stock plans. Public companies generally register all the shares issued under their stock plans and private companies are generally relying on Rule 701 for an exemption from registration. Either way, neither has to worry about accredited investors or complying any with of the Regulation D exemptions (including Rule 506). But where a private company has exceeded the limitations in Rule 701 (10 points if you know what they are off the top of your head–no Googling) or where either public or private companies are making private sales of stock to investors outside of their stock plans, the Regulation D exemptions can come into play.
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 I keep an ongoing “to do” list for you here in my blog.
Wondering what the hottest topics in stock compensation are today? You can find out at the 19th Annual NASPP Conference, with the session “Today’s Hottest Topics in Stock Compensation.” I happen to have caught a glimpse of the panel’s slide presentation, so, in today’s blog entry, I “leak” a few of the topics that will covered.
Today’s Hottest Topics in Stock Compensation I’ve been saying all year that performance-based awards are red-hot and I’m pleased to see that our expert panel agrees (it’s always nice to be right). The panel plans to discuss a number of tricky issues relating to performance-based pay that have emerged over the past year, including:
Setting long-term performance goals in today’s volatile economy without jeopardizing 162(m) deductibility.
Best approaches for disclosing in the CD&A the use of non-GAAP financials for performance awards.
Trends and emerging practices with respect to double-trigger CIC vesting of performance-based awards.
The panel also plans to discuss whether stock options will become more performance-based in light of ISS concerns.
Next year’s proxy season is also clearly on everyone’s minds these days. Here are the proxy-related topics that the panel plans on discussing:
Under what circumstances might a company defy ISS guidance and how should they prepare for the consequences?
Drafting the CD&A disclosure of the Compensation Committee’s response to Say-on-Pay votes.
How will ISS’s new policy (currently in draft form–see the NASPP alert “ISS Issues Draft of 2012 Policy for Comment“) regarding the evaluation of executive pay affect plan design, benchmarking, and support for management’s Say-on-Pay proposals?
What best practices have evolved for developing a strategy for shareholder Say-on-Pay?
The panel will also discuss clawback provisions (particularly what to do about them if the SEC doesn’t finalize rules before the 2012 proxy season).
Don’t miss “Today’s Hottest Topics in Stock Compensation” at this year’s NASPP Conference. The panel wil be moderated by Art Meyers of Choate Hall & Stewart (and of the NASPP Executive Advisory Committee). Art’s co-panelists will be Mike Melbinger of Winston & Strawn (and author of Melbinger’s Compensation Blog on CompensationStandards.com), Mark Borges of Compensia (and author of Borges’ Proxy Disclosure Blog on CompensationStandards.com), and Paula Todd of Towers Watson (and of the NASPP Advisory Board).
See You Next Week in San Francisco! It’s hard to believe, but the 19th Annual NASPP Conference is next week! I hope to see all of my readers at the Conference, which starts next Tuesday, November 1, in San Francisco. We expect to have around 2,000 attendees–it’s going to be a very exciting event; register today to ensure you don’t miss out (and make your hotel reservations, because the hotel is close to selling out).
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 I keep an ongoing “to do” list for you here in my blog.
They grow up so fast! July 21 was the one-year anniversary of the Dodd-Frank Act (in case you are wondering, it’s been nine years since SOX was passed–time sure flies when you’re having fun). Today I take a look at Say-on-Pay results and highlight a recent announcement from the SEC about the timeline of further Dodd-Frank rulemaking projects.
To reminisce more on Dodd-Frank developments over the past year, check out the memo “Dodd-Frank One Year Later” by David Lynn of Morrison & Foerster (and editor of TheCorporateCounsel.net).
Say on Pay: The Results So Far
With proxy season winding down, here are the latest Say-on-Pay results (courtesy of Mark Borges, who has been providing weekly Say-on-Pay updates in his excellent blog on CompensationStandards.com):
2,596 companies have reported votes. Of those, only 37 reported failed votes, but there are three additional companies (Cooper Industries, Hemispherix Biopharma, and isoRay) where whether the Say-on-Pay vote passed depends on how you count. Of course, if your Say-on-Pay vote is that close, it probably doesn’t matter whether you count it as a pass or fail; either way, you are likely to be making some changes to your executive pay.
At least three companies (Lockheed Martin, General Motors, and Umpqua Holdings) modified prior grants to be subject to performance vesting in response to shareholder comments in connection with their Say-on-Pay votes.
At a majority (about 76%) of the companies reporting votes, shareholders expressed a preference for annual Say-on-Pay votes.
SEC Delays Further Rulemaking
In his also excellent blog on CompensationStandards.com, Mike Melbinger reported yesterday that the SEC has modified its schedule for adopting rules relating to the Dodd-Frank Act, including the key provisions applicable to executive compensation. Here is the new schedule:
August – December 2011
§951: Adopt rules regarding disclosure by institutional investment managers of votes on executive compensation
§§953 and 955: Adopt rules regarding disclosure of pay-for-performance, CEO to median employee pay ratio, and hedging policies
§954: Adopt rules regarding recovery of executive compensation (i.e., clawbacks)
§956: Adopt rules (jointly with others) regarding executive compensation at covered financial institutions
July – December 2012
§952: Report to Congress on study and review of the use of compensation consultants and the effects of such use
Given the new schedule, Mike thinks it unlikely that most of these rules will be effective for next year’s proxy season, but there is a chance that one or two provisions will be effective for proxies filed after January (as with the Say-on-Pay rules, published in January 2011). Mike notes that the SEC will propose rules first (and already has for a couple of the provisions), so we should know well in advance which provisions will be final for the 2012 proxy season.
It’s Not Too Late to Enroll in the NASPP’s Financial Reporting Course The NASPP’s newest online program, “Financial Reporting for Equity Compensation” started on Thursday, July 14, but it’s not too late to get into the course. All webcasts have been archived for you to listen to at your convenience.
Designed for non-accounting professionals, this course will help you become literate in all aspects of stock plan accounting, from expense measurement and recognition, to EPS and tax accounting. Register today so you don’t miss any more webcasts.
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 I keep an ongoing “to do” list for you here in my blog.
Don’t miss your local NASPP chapter meetings in Kansas/Missouri, Philadelphia, and Phoenix. And, next week, on August 10, the San Francisco chapter will host their annual all-day event at Wente Vineyard in Livermore, CA. You really should come out for this exceptional event.
The SEC plans to address the clawbacks in Section 954 of the Dodd-Frank Act between August and December of this year. Many companies appear to be waiting to make final decisions on how to apply the clawback requirements until the SEC completes the proposed rules. (There is more information on creating a clawback policy in the NASPP blog entry, Clawbacks and Executive Compensation.)
Under the Dodd-Frank Act, companies risk delisting if they do not adopt a clawback policy that complies with Section 954 (which is now Section 10D of the Exchange Act). Some of the more difficult aspects of compliance may be in the clawback period (there is a three-year look-back), the potential for little or no company discretion in enforcing the policy, the fact that the executive does not need to be at fault or have contributed to a financial restatement and the actual calculation of compensation that must be recouped.
SEC Enforcement
In 2009, the SEC brought the first enforcement action based solely on SOX clawback provisions. There has been an increase since that case of suits involving clawbacks initiated by the SEC. Last month Beazer CEO, Ian McCarthy, agreed to pay back $6.5 million in compensation under the SEC action against him. (It may not be a coincidence, then, that Beazer’s shareholders voted against pay packages for company executives this year).
Enforcement Snags
The legal aspect of actually recouping compensation under a clawback provision or policy is complex. In the Unites States, enforcement is subject to state wage laws and may or may not be feasible. Presumably, the federal regulations from Dodd-Frank will trump state law, but that is yet another detail to be worked out. Another difficulty for companies to overcome is with respect to di minimis recoupment amounts or clawbacks that would require unreasonable efforts, such as situations where the individual does not have the finances available to repay the compensation.
International Considerations
International considerations for clawbacks are covered in this great matrix from Baker & McKenzie, which differentiates between Dodd-Frank, noncompete, and nonsolicitation clawback practices. In some countries like Canada, Germany, and Mexico, the provisions of Dodd-Frank are likely to be enforceable. However, in many countries like Australia, Japan, Spain, such policies most likely would not be enforceable, particularly if there isn’t an issue of misconduct or individual culpability. There are even situations like in Ireland or the UK where the provisions are likely to be enforceable as long as they were included in the original agreement, which could be a problem for existing equity compensation.
Last Tuesday, January 25, the SEC issued final regulations on Say-on-Pay votes. For the most part, the SEC adopted the proposed regulations, with only a few minor adjustments.
As expected the regulations require three non-binding votes:
Say-on-Pay: Shareholders must be permitted to vote on executive compensation every one, two, or three years. The first vote must be held at the company’s first annual meeting on or after January 21, 2011. Shareholders will be voting on the compensation paid to executives as disclosed in the proxy statement.
Say-on-Pay-Frequency: Shareholders must also be permitted to vote on how frequently the company holds a Say-on-Pay vote. This vote must occur at least every six years, with the first vote occurring at the company’s first annual meeting on or after January 21, 2011.
Say-on-Parachutes: Shareholders must be permitted to vote on golden parachute arrangements. If these arrangements have not previously been voted on, this vote must be included in the proxy statement relating to the merger (or similar transaction) for which the compensation will be paid. This requirement applies to filings on or after April 25, 2011.
McGuireWoods provides a good summary of the final regulations; we’ll be posting an alert with links to additional memos as we receive them.
Other Dodd-Frank Rulemaking Delayed As Broc Romanek mentioned in his blog (“Four of Corp Fin’s Dodd-Frank Rulemakings Delayed,” January 27, 2011), the SEC has pushed back its estimate of when proposed rules will be issued for the following projects:
Pay-for-performance disclosure (how compensation is related to financial performance)
Pay ratios (ratio of CEO pay to median employee pay)
Clawback policies (clawback of officers’ compensation upon financial restatement)
Hedging policies (whether the company has a policy regarding the ability of directors and employees to hedge)
Based on the SEC’s revised timeline for implementing the Dodd-Frank Act–the proposed rules now aren’t expected until August, at the earliest, and possibly as late as December–Broc speculates that rules for these projects may not be finalized in time for the 2012 proxy season.
A More Social NASPP The NASPP has boarded the social networking train: you can now follow us on Twitter or like us on Facebook. We’ll be posting announcements whenever we post new content on Naspp.com–it’s a great way to keep up with all the content we have on the website.
NASPP Members Eligible for Discount on CEP Exam If you’ve been thinking about enrolling for the Certified Equity Professional exam, now is the time to do it. Because the NASPP serves on the CEP Institute Advisory Board, we are able to offer NASPP members a $200 discount on the June 4, 2011 exam.*
The CEP program is the certification standard for the equity compensation industry, comprised of a three-level, self-study program in the technical regulatory issues affecting equity compensation.
Visit the CEPI website for more information on the program. To take advantage of the NASPP member discount, contact the CEPI at (408) 554-2187. Don’t wait; registration closes on April 22.
* The Fine Print: Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company’s equity programs. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at (408) 554-2187.
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 I keep an ongoing “to do” list for you here in my blog.
If you are in the San Diego area, attend the San Diego NASPP chapter meeting on Wednesday, Feb 2. Robyn Shutak, the NASPP’s Education Director will there; be sure to say hello!
According to the NASPP’s 2010 Domestic Stock Plan Design Survey (co-sponsored by Deloitte, with survey systems support provided by the CEP Institute), 68% of respondents report that their stock compensation programs are not subject to a clawback provision. I’m hearing predictions that this will change, with more companies implementing clawbacks for executive level employees in the future.
Clawback Provisions A clawback provision enables the company to recover, or “clawback” previously paid or realized compensation upon the occurrence of specified events or behavior. Historically used to enforce noncompete provisions, we are now seeing clawbacks for financial restatements due to misconduct or compliance failures, inaccurate financial reports, and fraud or ethical misconduct (whether or not it results in financial restatement). I’ve even heard of a company including a clawback on performance awards if the board later determined that the way the performance goal was achieved wasn’t quite the behavior they were looking for. Clawbacks can apply to bonuses and various types of stock awards, including stock options, restricted stock/units, and performance awards.
Why Clawbacks Now?
Clawbacks are hot now in part because several recent pieces of legislation have required them, including SOX, the Emergency Economic Stabilization Act, and, most recently, Dodd-Frank. Although the requirements are fairly limited in each case (for example, EESA only applies to TARP companies), regulator interest in clawbacks is likely indicative of the public and media support for them. And now clawbacks are viewed as an effective tool for mitigating risk in compensation programs.
In addition to the obvious questions that must be addressed when implementing clawbacks–who should the clawback cover, what compensation should it cover, what events should trigger it, and how long it should be in effect–there are a number of more sophisticated matters to address:
Should the clawback be a provision in the plan or award agreement or should it be a more general policy?
Will the clawback be enforceable? State laws can be a particular hindrance to enforcement, so this question is not always as easy to answer as you might think, given that federal laws require clawbacks in some circumstances.
How will the clawback be communicated to executives and what level of consent will be required from them (for example, executives have to indicate consent by signature)? If the clawback policy covers previously granted awards, what will the consequences be if executives don’t consent?
What level of discretion to enforce (or not enforce) the policy will be provided to the board?
If a company has a clawback policy or provision in place, one tip from the “Risk Mitigation for Stock Compensation” panel is to discuss the policy prominently in the Executive Summary of the CD&A in your proxy statement. Clawbacks are exactly the type of risk mitigation strategy that ISS and shareholders (and other shareholder advisory groups) are looking for; having a clawback policy could offset other problematic compensation practices.
The panel also included a detailed discussion of the tax treatment that applies when a clawback is triggered–information that is likely to be very useful in the future as we see more enforcement of these provisions.
Conference Audio Available If you missed these panels and want to know more about clawbacks, don’t despair–you can purchase the recorded audio for any and all Conference sessions in downloadable MP3 format. Purchase just the session(s) you want or save by purchasing a package of sessions.
Free Conference Session Audio If You Renew by Dec 31 All NASPP memberships expire on a calendar-year basis. Renew your membership by Dec 31 and you’ll qualify to receive the audio for one NASPP Conference session for free!
Join Now and Get Three Months Free! If you aren’t currently an NASPP member, now is the time to become one! Join the NASPP for 2011 and you’ll get the rest of 2010 for free. Tell all your friends!
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 I keep an ongoing “to do” list for you here in my blog.
Say on pay is inevitable, but it’s difficult for stock plan managers to know exactly what that means to them. Because it’s practically unheard of for the equity compensation team to be on the decision-making side of executive compensation, it may feel easy to dismiss say on pay as an issue that can be overlooked.
However, availing yourself as a knowledgeable resource within your company elevates you as a subject matter expert. Being a part of the conversation when it comes to new policies or grant practices always helps ensure that the solutions coming down your pipeline are both effective and manageable. In that spirit, these are my top three action items for stock plan managers to prepare for say on pay:
Know what shareholders; hot buttons are for share-based compensation, including what features and provisions are likely to be unacceptable and those that increase the likelihood of acceptance. Take a good look at your company’s executive equity compensation to see how outstanding grants rate. Here are a few:
Pay for Performance – A significant majority of the bad press generated over executive compensation focuses on the disparity between executive compensation pay-outs and the relative success of the company during the same period. Pay for performance is more than simply slapping a performance condition on a grant, especially if the performance measures are not adequate to inspire long-term success. This year, we have a fantastic pre-conference program dedicated to performance awards, the Practical Guide to Performance-Based Awards. If you’re looking for ways to beef up your knowledge on performance awards, this is the program for you!
Dividend Payments – Shareholders generally don’t want to see executive compensation that pays out dividends or DERs on unvested shares. This follows right in line with pay for performance; shareholders don’t want to see that an executive will be eligible for dividends on unearned shares.
Long-term Focus – One of the hottest buttons for shareholders is whether or not executive compensation has a long-term focus. For equity compensation, this includes issues like minimum vesting periods (e.g.; at least 3 years, but preferably 5 years) and holding requirements. Increasing the length of time executives must wait before they can cash out their company shares reduces the temptation executives may feel to take excessive risks. Take a close look at your executives’ equity compensation and create a list of features or provisions that demonstrate a long-term focus.
Double-trigger – When it comes to change in control provisions in your grant agreements, shareholders (and potential acquiring companies) absolutely want to see a double-trigger for acceleration of vesting in the event of a change in control. If you haven’t already, take a close look at your grant agreements to see what your company’s change-in-control provisions look like.
Clawback Provisions – depending on how the House and Senate reconcile their final versions of their bills, clawback provisions could be required for listed companies. Shareholders generally like to see that clawbacks are not only in place, but also enforceable. Typically, clawback provisions are found in employment contracts, so have a conversation with your legal team to find out what your company’s current practice is and if that will be changing. Remember that clawback provisions can extend beyond fraud situations; they also may be part of other provisions such as non-compete requirements.
Know what your peer companies are doing and how it compares to your company. This is getting easier to do with enhanced proxy disclosure. If your company’s compensation philosophy already identifies peer companies or groups, then the difficult part has already been done for you. Check out the 2010 proxies from those companies and review their executive compensation practices. Also, keep up with the latest news on shareholder advisory votes; particularly keeping your eyes open for any executive compensation that does not garner vote of approval from shareholders.
Coordinate with your legal and compensation teams. First, it’s important to just keep the lines of communication open and be a part of the conversation. More specifically, find out if tackling say on pay (along with increased disclosure requirements) will require you to provide different or additional data and/or analysis. The earlier you know about additional data requirements, especially if they will ultimately be a periodic need, the more time you have to find the most efficient solution to providing that data.
The NASPP Conference’s Say on Pay Track
Hot off the presses! This week, we announced the “Say on Pay” track that we’ve added to our 18th Annual NASPP Conference. Don’t get left behind on decisions your company may be making in light of say on pay, join us for these essential sessions!
The Sarbanes-Oxley Act contains an umbrella clawback provision requires that the CEO and CFO give back incentive compensation and stock sale profits in a year prior to any restatement that was caused by misconduct or fraud. Last year, the SEC filed a landmark complaint against the CEO of CSK Auto Corp (see the SEC Press Release) that sought to recoup incentive compensation resulting from accounting fraud without actually alleging that the CEO participated in the fraud. While Sarbanes-Oxley does not require that the executive actively participate in the fraud in order for the clawback provision to be invoked, this case marked a first for the SEC to open a case against an executive without alleging actual misconduct on the part of the individual.
For individual companies, a clawback is a contractual provision that provides the company with a means of recouping incentive compensation or stock sale profit from executives or top employees. The provision may apply to fraud, incentive resulting from incorrect financials, violation of non-compete provisions, or other violation of other specific restrictions within the agreement. Companies may include both equity compensation and cash bonuses in clawback provisions.
The existence of a clawback provision does not mean that a situation that violates the restrictive provisions will automatically result in funds being returned to the company. Most likely, the company will need to initiate legal proceedings in order to recoup any profits. Additionally, unless the agreement between the company and the executive details the repayment process, the company may need to negotiate the timing and manner of repayment.
Shareholders
Shareholders are most interested in performance-based clawback provisions that recoup profits resulting from accounting fraud. These types of clawbacks provide a critical protection to shareholders by forcing the executives to share in the financial losses related to inaccurate financial statements. This goes beyond performance-based pay arrangements where the executive only benefits if certain goals are reached (with the intention of aligning executive pay-out with shareholder benefit) because it reaches back to profits already realized by the executive rather than reducing future payout.
The use of clawback provisions can be helpful when companies are justifying their executive compensation.
Recent or Pending Legislation
Companies participating in the TARP are required to have clawback provisions relating to “materially inaccurate” financial statements. Additionally, TARP companies are required to exercise their clawback rights except in cases where they can demonstrate that it would be “unreasonable” to do so. This was further highlighted in the October determinations from the Treasury (see our alert). For more information on the TARP or other provisions under the Emergency Economic Stabilization Act of 2008, see our Economic Stimulus Legislation portal.
The proposed Senate bill, Restoring American Financial Stability Act (also known as the Dodd bill), goes one step further and recommends that all public companies be required to set clawback policies pertaining to inaccurate financial statements.
For Stock Plan Administrators
Hopefully, you will not need to deal with enforcing any clawback provisions your company may have. However, it’s a good idea to know if the company has clawback provisions in place and if there is a corporate policy on initiating repayment if they are triggered. One issue with clawbacks is that they may not be included in documentation that is normally accessible to stock plan administrators. They may be part of an employment or other separate agreement.
If you want to really take it one step further, educate yourself on the additional implications of recouping profit under a clawback provision. This may include how to handle previously remitted tax withholding or whether there are any 409A issues relating to the repayment method.
For more information on clawbacks and other provisions, check out the materials and audio from the Executive Compensation Conference, which we offered free of charge this year to everyone who attended the NASPP Conference.
More NASPP Value
We’ve added a new portal to the NASPP site, Shareholder Approval. It includes information on shareholder approval of stock plans, compensation, and options exchanges. Additionally, you will find exchange listing rules, legislation, proxy advisory firm recommendations, and more!