The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

July 16, 2024

Clawbacks: Voluntary Policies Remain Prevalent at Large Cap Companies

When the final clawback listing standards were being adopted, there was a lot of speculation about what companies would do with existing policies — since those policies went beyond the stock exchange requirements in some ways and, in others, allowed greater flexibility than permitted by the listing standards. Would companies maintain the provisions that go beyond the requirements? Would their required policy be combined with their existing voluntary policy? We ran a survey of our members, and the results were split. This FW Cook blog has an update with data from the 2024 proxy season:

Now that the 2024 proxy season is underway, there is data to determine whether companies merely adopted SEC-compliant policies, or adopted (or retained) more expansive policies that may cover a broader population, definition of compensation, and/or clawback triggers. In an internal survey of practices among 45 large-cap companies (market capitalization greater than $10 billion), we found that 80% maintain an expanded clawback policy that goes beyond the SEC requirements. Unlike the SEC mandatory requirements, expanded clawback provisions typically provide for discretionary application. … Among the 20% of survey companies that only maintain a clawback policy that satisfies SEC requirements, one-third indicated an intention to review their policies soon and are considering adoption of an expanded policy.

The blog cites these as common features of the voluntary policies or provisions:

– 66% of the survey companies cover a broader population than SEC requirements, either by title (e.g., VP/SVP and above), coverage of all corporate officers, or the entire executive/leadership group

– With SEC requirements only mandating coverage of “incentive-based compensation”, 67% of the survey companies have expanded coverage to include broader types of compensation, such as all cash and equity incentives (including time-based awards)

– In addition to the SEC rules covering restatement-related clawbacks, expanded policies may include triggers absent a restatement, for example:

  • Fraud or misconduct absent a financial restatement (64% prevalence)
  • Reputational, financial, and other harm to the company (31% prevalence)
  • Violation of company policy / code of conduct (25% prevalence)

If you joined us for our fall conferences last year, hopefully you heard our stellar panel on clawbacks. It was so chock full of helpful takeaways that we asked the panelists back this year for our “Living with Clawbacks: What Are We Learning?” panel. Join us at our 2024 Proxy Disclosure & Executive Compensation Conferences on October 14-15 in San Francisco to hear what tricky clawback issues they’re mulling over one year later. You can peruse our agenda to see what else our expert practitioners will cover! Our early bird price for in-person single attendees ends July 26, so register now to take advantage of this discounted rate!

Meredith Ervine