January 12, 2012
NYC Funds Seek Tougher ‘Clawback’ Policies
–Ted Allen, ISS
New York City’s pension funds have filed proposals at Goldman Sachs, JPMorgan Chase, and Morgan Stanley that call for stricter “clawback” policies to recover executive compensation. “No one should profit or be rewarded with bonuses when engaged in improper or unethical behavior,” City Comptroller John Liu said in a Dec. 21 press release. “These tougher clawback provisions will not only recover money that shouldn’t have been paid in the first place, but also set the tone for a stronger standard of conduct for company executives as well as their bosses.”
The proposals at Goldman Sachs and JPMorgan ask the financial firms to revise their current clawback policies, which only hold executives responsible for “material” losses. The proponents contend that the existing policies create “unrealistically high legal and financial standards for clawback actions,” and “[protect] executives from being held accountable.” All three resolutions ask the boards to hold executives responsible for the unethical conduct of their subordinates. “Under the current system, a senior executive can benefit when a subordinate engages in improper conduct that generates profits in the short-term, but that ultimately causes financial or reputational harm to the firm,” the investors contend.
Finally, the city funds urge the firms to amend their clawback policies to require the disclosure of any decision by their boards on whether or not to recoup executive compensation. The resolution at Goldman Sachs was co-filed by the UAW Retiree Medical Benefits Trust. The New York City funds reported that they held shares worth a combined $483 million in the three financial firms (as of Dec. 19).