Fallout from the recent financial crisis has further subjected executive compensation programs to public scrutiny. Of particular focus are bonuses and incentive compensation paid to executives at failing companies. Congress, regulators and investors are outraged over the fact that executives—those who arguably had a hand in the mistakes (or fraud) that led to their employer’s financial troubles—received bonuses, option gains or other incentive compensation based on erroneous financials. This backlash has resulted in increased focus on compensation recovery, or “clawback” policies.
Generally, an executive compensation clawback refers to an employer’s right to recovery of compensation paid or owed to an employee upon the occurrence of a specific type of triggering event. The clawback may be a recoupment of compensation already paid to the employee or a cancellation of an outstanding but unvested and unpaid future award.
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