The Advisors' Blog

I’ve been meaning to share a few key takeaways from one of my favorite programs at the Northwestern Securities Regulation Institute back in January. This was a “spotlight session” on the topic of clawback policies – with Latham’s Michele Anderson, Perkins Coie’s Allison Handy, and Compensia’s Mark Borges, who is also an Editor for this site. When it comes to implementing your clawback policy, Mark commented that you probably don’t need to work through all of the detailed mechanics for recovery in advance – but at the same time, you don’t want to be caught flat-footed. The panel offered these ideas to be prepared:

– Know the players: Which company functions will be involved in the recovery process? Will you need to engage third parties? For example, if your awards include a TSR or stock price component, you may need to involve a valuation expert. It’s a good idea to make a contact list in advance for the people who will be involved. Also consider who from management will be in charge of gathering data, in light of potential conflicts of interest.

– Know your plans: Understand which plans and awards will be implicated in the event of a restatement, and which financial measures the awards are tied to.

– Know recoupment sources & restrictions: Have a sense of how you would source the recoupment (e.g., would the officers have unrelated unvested equity awards?), and how applicable state laws may affect your ability to recover certain types of compensation.

– Watch developments: Stay on top of interpretive guidance and filing trends, to get a sense of how practices develop in terms of sourcing the recoupment, timeframes, etc.

– Maintain documentation: Keep specific and detailed documentation. It’s likely that clawback decisions will be litigated by executives and/or shareholders. This risk increases in proportion to the amount at stake.

Allison also noted that because companies are required to “promptly” recoup erroneously paid compensation, it’s important to coordinate efforts between the audit and compensation committees if the possibility of a restatement comes to light. The compensation committee needs to be in the loop on materiality determinations and affected financial measures so that its implementation of the clawback policy isn’t unduly delayed.

For more “implementation” recommendations, see this blog from Meredith last summer and this hypo blog that I shared last year.

– Liz Dunshee