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Clawbacks

Executive Compensation Blog

Executive Compensation Blog originally appears on CompensationStandards.com

One of the four primary new limitations under the TARP-Capital Purchase Program is one that requires the company to claw back SEO bonus and incentive compensation payments if those payments were based on financial statements or any other performance metrics later determined to be materially inaccurate.

The progenitor of this clawback rule is, of course, Sarbanes-Oxley Section 304. However, the CPP clawback rule differs from SOX Section 304 in several important ways:

  • The CPP clawback also applies to the three most highly compensated executive officers, not just the CEO and CFO, like 304.
  • Sec. 304 has a one-year recovery limit, while the CPP clawback provision has no limit on the recovery period.
  • Sec. 304 only applies when there is an accounting restatement, whereas the CPP clawback covers material inaccuracies relating to financial reporting and material inaccuracies relating to other performance metrics used to award bonuses and incentive compensation.
  • Finally, the CPP clawback covers both public and private financial institutions.

 

This Blog and others from CompensationStandards.com have been discussing - for some time now - the growing prevalence of clawback provisions in executive compensation plans and agreements. Those companies that have implemented clawback provisions should considering looking at the TARP-CPP rules as a model, and those companies that have not implemented clawback provisions should seriously consider doing so.

Executive Compensation Blog

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This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.