The Advisors' Blog

This “Governance Intelligence” (formerly “Corporate Secretary”) article walks through practical steps compensation committees need to take to implement a clawback policy. The article highlights the benefits of advanced planning to determine the process to be followed in the event the policy is triggered.

In preparing to implement a clawback, the compensation committee should establish a written process and related timeline for required actions, as well as the identification of potential members of a clawback implementation group. This group should comprise people from the company and any outside experts necessary to implement the process.

Working through some of this in advance seems helpful because the many complexities may be more difficult to navigate when “under the gun.” For example:

If it is determined by the audit committee or the full board that a restatement is required, the compensation committee should meet to implement the clawback review process, set timeframes for required actions and establish the clawback implementation group members responsible for the collection of relevant information and the determination of the impact of the restatement on incentive compensation. The compensation committee should also consider the potential for conflicts of interest when management is involved in determining clawback amounts and making judgment calls with respect to calculations, sources of funds and taxation matters.

Depending on the dollar amounts involved, the compensation committee may decide to hire independent compensation or accounting experts and counsel to work with the internal clawback implementation group. Considerations of attorney-client privilege may dictate that counsel hire outside experts in order to maintain the privilege.

The panelists in our spring webcast “Clawbacks: Navigating the Process After a Restatement” had a similar message. I’ve even heard of companies working through a “dry run” with their counsel to work out (some) kinks in a hypothetical situation.

Join us at our 2024 Proxy Disclosure & Executive Compensation Conferences on October 14-15 in San Francisco to hear the latest on tricky clawback issues and market practice during our “Living with Clawbacks: What Are We Learning?” panel. There are now a number of examples of disclosures regarding mandatory clawbacks, disclosures that no clawbacks were required and SEC comments, and I’m looking forward to hearing our panelists’ perspectives. You can peruse our agenda to see what else our expert practitioners will cover and register here for in-person or virtual attendance.

– Meredith Ervine