Corporations should go far beyond the frameworks in Dodd-Frank and Sarbanes-Oxley in designing clawback and holdback policies. Broadly and properly constructed, these mechanisms, now encompassed under the term of art “compensation recovery policies” are essential for ensuring high performance with high integrity—for holding officers and employees accountable for operating objectives to achieve that broad goal.
Section 954 of the Dodd-Frank Act mandates clawback of compensation for all executive officers for any company listed on a U.S. securities exchange if it has material financial restatements—regardless of individual fault; Sarbanes-Oxley, enacted in 2002, requires clawbacks only from CEOs and CFOs if there was misconduct that led to a restatements But U.S. Securities and Exchange Commission regulations on Section 954 provision are not yet complete (almost four years after passage of Dodd-Frank), and, as noted recently in Corporate Counsel (“Compensation Clawbacks: Compliance First, Rules Later”), some companies are not waiting for the SEC and are revising clawback policies that date back to SOX.
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