The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Mark Poerio of Paul Hastings writes this on ExecutiveLoyalty.org:

A recent Wall Street Journal article (“Blind Spot Covered Ex-Trader’s Trail,” 4/8/13), describes Morgan Stanley’s plan to claw back $100,000 to $200,000 of deferred compensation as a result of a trader’s guilty plea to charges arising from his work for a prior employer. This proposed clawback suggests a desirable business dynamic, in the sense that employers should have the discretion to decide what circumstances should trigger the forfeiture or repayment of executive compensation.

By contrast, Section 954 of the Dodd-Frank Act requires that employers pursue mandatory clawbacks regardless of business judgment or cost-benefit analysis. The vast majority of employers have clawback policies and rights, and there is a healthy move toward deepening them (as evidenced by the recoupment policy that the major pharmas recently approved in conjunction with an investor coalition.)

Section 954’s misguided mandate is merely getting in the way of healthy governance. Before there is further waste of SEC or business resources, it would be smart to convert Section 954 into a discretionary right for employers. The fix would be simple, and would remove a drag that current law creates.