The Advisors' Blog

It’s still early days for Dodd-Frank clawback policies – but this Woodruff Sawyer blog says that so far, very few companies have experienced restatements that trigger a recovery. Here’s more detail:

Recovery Analyses Are Happening, but Clawbacks Are Not

A “recovery analysis” is generally conducted any time a restatement occurs.

Under the SEC’s final rule, both “Big R” (material) and “little r” (immaterial) restatements can trigger the need for a recovery analysis. That makes the bar for triggering a review quite low.

Based on analysis by Deep Quarry, through the first six months of 2025, there have been 50 companies that have included recovery analysis disclosures in their filings. Through the same period, only six companies disclosed the clawback of executive compensation following an accounting restatement. While it’s more than the two companies that disclosed clawbacks in the first half of 2024, the delta thus far is underwhelming.

Without news of big recoveries, it’s not too surprising that the insurance market also hasn’t taken off. Remember that executives would need to pay for insurance out of their own pocket since the rule prohibits companies from reimbursing them. The blog suggests that if executives do get more anxious about clawbacks, there may be unintended consequences for shareholders:

The SEC was right that people would be interested in this type of coverage, but we have not seen a robust market response.

Some carriers stepped forward with coverage options designed to respond to clawback demands. However, the limits were low, the premiums were high, and the coverage had to be paid for by individuals, not the company.

If the rule starts to have real consequences, the insurance market may eventually respond. But if that happens, one wonders: If executives can simply insure against the risk, what accountability does the rule actually enforce?

Further, consider this: the greater risk executives face of losing their incentive compensation, the greater the amount of incentive compensation a company needs to award to attract and retain talent (e.g., an uncertain dollar is worth less than a certain dollar).

In terms of seeing a big impact here, are we waiting for Godot? That may be the case if we’re talking about a groundswell of clawbacks – time will tell. Unfortunately, if a restatement happens at your company, the only outcome that will matter to you at that point will be your own. On a positive note, there are now a few precedents to work from, and these statistics may give some comfort to practitioners who have to deal with the complexities of the clawback process if it’s triggered. For sample clawback disclosure – and helpful commentary – see this Proxy Disclosure Blog from Mark Borges.

– Liz Dunshee