November 9, 2021
19th Annual “Executive Compensation” Survey: Data on “Clawback Policies”
The annual “Corporate Governance & Executive Compensation Survey” of the 100 largest companies from Shearman & Sterling is out! Last year, I blogged about perquisites – and airplane use is covered again on pg. 64 of this year’s survey. In light of the SEC reopening the comment period on its “clawbacks” proposal, I was particularly interested in the benchmarking on existing clawback policies that begins on pg. 59. The survey says that 95 of the top 100 companies disclose that they have a financial-related clawback policy, and that clawback triggers include:
– Financial restatement (77) – and within that, 45 companies require fraud or misconduct related to the financial restatement and 32 do not
– Fraud or misconduct relating to financial statements (11) – these companies don’t require a restatement to trigger a clawback, but do require fraud or misconduct
– Materially inaccurate financials (8) – again, no restatement required
– Employee subject to the recoupment engaged in fraud or misconduct (52)
The survey also says that 14 of the companies expressly say that the clawback policy applies to former employees or executives, as well as current. Most companies (55) apply the policy to all executives, while a handful limit it to NEOs or Section 16 officers only. 23 companies apply the policy to all employees (or all participants in the plans subject to the policy). And, 79 out of the top 100 companies apply the policy to both cash & equity awards.
When it comes to non-financial related clawbacks, 79 companies maintain a “detrimental conduct” policy. Here are the most common triggers for that:
– General fraud or misconduct (45)
– Violation of restrictive covenants (non-competes, confidentiality, etc.) (24)
– Acts resulting in reputational, financial or other harm to the company (20)
– Violation of company policy (e.g., code of conduct) (19)
– Termination for “cause” or misconduct (16)
– Violation of law (e.g., embezzlement, theft & bribery) (14)
– Failure of risk management (10)
– Liz Dunshee