The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here is some follow-up on my blog about former Rep. Barney Frank’s fight against clawback insurance policies. In her article, Francine McKenna wades into the recent debate about the claws in clawbacks. And here is something that Bill Tysse of McGuireWoods blogged last year in his “Just Compensation” Blog:

This recent story in Insurance News reports that a major insurance firm, Marsh, is now offering protection to officers against potential clawback liability under Section 210 of the Dodd-Frank Act. Section 210 allows the FDIC to clawback compensation from officers and directors responsible for the failure of covered financial companies. The article mentions that Marsh is also considering extending the clawback protection coverage to Section 954 of Dodd-Frank, which requires all public companies to adopt a clawback policy covering erroneously paid compensation in the event of a financial restatement.

The enforceability of such protections may be in doubt. In a case of first impression last year, the Second Circuit Court of Appeals held that a company was prohibited from indemnifying an officer for clawback liability under Section 304 of the Sarbanes Oxley Act, a precursor to the Dodd Frank clawback provisions which only covers the CEO and CFO. If a company is prohibited from indemnifying an officer or director for such liability directly, then it may be unlikely a company could indemnify the officer or director indirectly through a D&O policy.

One member muses: Doesn’t this miss the points that (1) insurance has been treated differently that indemnification and (2) an approach may be for directors and officers to pay the premium associated with this portion of the insurance coverage as is now the case with D&O insurance?