The Advisors' Blog

A few weeks ago, I recommended a few action items that can help you be prepared to implement your clawback policy in the unfortunate event your company determines that it needs to restate financials. Meredith has blogged about “the unlucky first few” companies that have had to analyze recoupment and make the required Item 402(w) disclosures. But now, a higher profile example has arrived, which will no doubt be a reference point for other companies that find themselves in this position.

You probably remember the news late last year about a “rogue employee” at a prominent retailer hiding over $150 million in cumulative delivery expenses over the course of nearly three years. At the time, the company disclosed that revisions should be made to its historical consolidated financial statements. The impact was not material to any prior period, but a correction was made in the Form 10-Q for the third fiscal quarter – which ended November 2, 2024.

This apparently constituted a “little r” restatement. Both “clawback”-related checkboxes were marked on the Form 10-K that the company filed a couple of weeks ago. Now, the proxy statement is also here, with the “recoupment” disclosure beginning in detail on page 88. Here’s an excerpt:

The financial performance metrics used to determine payouts under the 2023 annual incentive plan (“STI Plan”) were total revenue (40%) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) (40%). Total revenue was not affected by the error correction. The performance metrics used to determine payouts under the 2021 – 2023 performance share plan (“PRSU Plan”) were digital sales (50%) and relative total shareholder return (rTSR) (50%) determined over a three-year performance period using the S&P Retail Select Industry Index as the peer group. Digital sales were not affected by the error correction.

The proxy goes on to describe the recoupment analysis for the relevant metrics. Because of the rTSR metric, the company engaged a third party to conduct an event study and estimate the effect of the accounting restatement on the incentive metrics for the PRSU element of compensation. The committee determined there was no erroneously awarded compensation for the PRSUs, but the STI payouts were a different story:

The erroneously awarded compensation pursuant to the 2023 STI Plan was paid to Covered Officers in cash, net of tax withholding, in April 2024. The aggregate amount of erroneously awarded compensation that remained outstanding at the end of fiscal 2024 was $609,613, and at April 1, 2025 was $352,093. The CMD Committee will seek to recover the remaining amount of the erroneously awarded compensation from Covered Officers in accordance with the Clawback Policy during fiscal 2025.

This disclosure illustrates that the clawback process may be well underway – and perhaps even complete – by the time it’s disclosed in the proxy statement. The company appears to have acted quickly here.

Although this is one of the first companies that has had to analyze and disclose a Dodd-Frank clawback, it won’t be the last. Now there’s an instructive real-world framework.

– Liz Dunshee