The Advisors' Blog

On her “Deep Quarry” Substack newsletter, Olga Usvyatsky recently analyzed trends for Q2 2025 clawback disclosures. Unlike Q1, the clawbacks disclosed during the most recent quarter related to “Big R” restatements. But Olga reiterated her prediction that “little r” restatements will likely be the more common trigger over time – as well as her observation that “little r” Dodd-Frank clawbacks may tell investors as much about the company’s pay design as they do about financial reporting shortcomings:

…Additionally, when a quantitatively immaterial misstatement leads to a clawback, it implies that performance targets were so narrowly met that even a minor correction tipped the outcome. For example, if an executive bonus was triggered at exactly 100% of a revenue or EPS target, a 1–5% overstatement could have made the difference between receiving or forfeiting an award.

Setting aggressive performance targets is a double-edged sword. While ambitious goals can align management incentives with those of shareholders, they can also create incentives for excessive risk-taking or earnings management to meet aggressively set thresholds.

As I mentioned in my previous post, clawbacks after immaterial little r restatements are not necessarily a sign of wrongdoing. Yet, arguably, no-fault clawbacks may expose weaknesses in accounting reporting or operational performance, thus warranting more scrutiny.

Olga’s comment caught my eye because from the company perspective, it underscores the need for compensation committees and audit committees to collaborate to understand the potential impact of financial metrics and financial reporting decisions on incentive programs – and the benefits that may be gained from “scenario planning.” Olga also considered the message that a company might be sending when a “Big R” restatement is disclosed, but the correction doesn’t trigger any clawback:

Thus, the question: are companies with “Big R” restatements less likely to rely on accounting-based metrics in setting executive compensation? Or perhaps these companies have easier-to-reach performance targets that are met even if the actual numbers are restated? Similarly, does restructuring the executive compensation agreements to move away from (or rely less on) accounting-based metrics following the implementation of Rule 10D-1 signals a potentially lower accounting quality concerns and foreshadows a future restatement?

An analysis of those questions will require a bigger data set than what we currently have. Which brings us back to Q2 trends and the fact that the number of affected companies will continue to grow over time. Olga identified these key trends for the most recent quarter:

– The number of error correction flags declined sharply in Q2 2025 compared to Q2 2024.

– The number of companies with the recovery analysis flag increased in Q2 2025 compared to Q2 2024.

– A failure to adopt the mandatory clawback policies or to attach the compensation recovery policy as an exhibit to the annual report led to amended filings or non-compliance with exchange listing rules for some issuers.

– Two companies reported restatements-related clawbacks and two more companies disclosed that the recovery analysis is still ongoing.

Check out the “Borges’ Proxy Disclosure Blog” for continued updates on clawback-related disclosure examples. We’ll also be giving practical guidance on clawbacks – and more! – at our October “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” Join us in Las Vegas on October 21st & 22nd – right before NASPP’s annual conference in the same location – or virtually, if you can’t attend in person. Here’s the can’t miss agenda – and all the excellent speakers. You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271. Hotel rooms at the Virgin Hotel are going fast – so sign up today and book your room at our special rate!

– Liz Dunshee