April 3, 2023
Clawback Policies: Make Your Game Plan Now
As John and Liz have reminded us, new clawback policies may need to be in place way before the January 2024 timeframe many of us were initially hoping for based on the outside date in the rule. It’s hard to say rulemaking is moving more quickly than expected given that over a decade has passed since clawback rules were mandated by Dodd-Frank, but, between PVP and clawbacks, legal and HR teams have had to move quickly to keep up. Is there a phrase that means the opposite of “hurry up and wait”?
As Liz noted, we’ve posted Wilke’s sample form of clawback policy that addresses the Dodd-Frank requirements in our “Clawbacks” Practice Area, but—like everything in this area—there’s a lot to analyze as you go to adopt a compliant policy and make sure you have the documentation and procedures in place to support the process if and when clawbacks must be exercised. In Part 1 and Part 2 of a three-part series, WTW reviews some steps you should be taking now:
– Audit existing compensation plans to understand how they deal with any number of potential events that may occur before the compensation is actually paid
– Identify existing clawback policies and related provisions in plan documents and employment agreements
– Consider which elements of existing clawback policies and plan documents—to the extent they go beyond the rule requirements—should be carried forward, possibly in a separate policy
– Inventory and identify all elements of compensation that use financial reporting metrics and are subject to clawback upon a financial restatement (see WTW’s list of documents to review as part of this process)
Why have two policies? As noted by the panelists on our recent webcast “The Top Compensation Consultants Speak,” it may be easier to address the disconnect between current market practice and the rule requirements with two separate policies. As Liz blogged previously, shareholders will not be pleased if existing policies are pared back. A separate policy could cover clawbacks in circumstances other than an accounting restatement and could make them discretionary, rather than mandated, and cover a different group of individuals. WTW suggests that companies may also consider an additional layer of clawbacks as a result of the recent DOJ directive on compliance programs.
– Meredith Ervine