A Closer Look At Clawbacks

A Closer Look At Clawbacks

On September 11, 2011, The New York Times published, "Clawbacks Without Claws," by Gretchen Morgenson. The article meant to highlight a lackluster enforcement record by the Securities and Exchange Commission (SEC) on executive pay "clawbacks". Under limited circumstances, the SEC can step in and force CEOs and CFOs to repay unearned bonuses and incentives - something those executives are supposed to do voluntarily if it turns out they were paid erroneously because of an accounting error or accounting manipulation.

Section 304 of the Sarbanes-Oxley Act of 2002, which covers clawbacks, is, on its face, a strict liability provision but the SEC has been exercising "prosecutorial discretion" when applying the statute.

The Dodd-Frank Act will expand the population of those potentially liable for clawbacks and the time period used to calculate the paybacks. The new law also drops the prerequisite under Sarbanes-Oxley that there has to be misconduct before paybacks are expected.

I covered this, and other provisions of Dodd-Frank that expand, retract, or revise Sarbanes-Oxley statutes, in a recent OpEd at Boston Review.

Read this article in its entirety at the re: The Auditors, a blog by Francine McKenna. For more information about LexisNexis products and solutions connect with us through our corporate site.