The Claws Are Out For Executive Bonuses

 
On June 10, 2009, the US Department of the Treasury released an interim final rule providing guidance on the executive compensation and corporate governance provisions of the Emergency Economic Stabilization Act of 2008 that apply to entities receiving financial assistance under the Troubled Asset Relief Program (TARP).
 
In an in-depth and fascinating round-table podcast available on the Arnold & Porter website, knowledgeable practitioners in the corporate and securities field lend their years of experience to the executive compensation topic, analyzing it in light of heightened government, investor and media scrutiny, and within the framework of the current, shall we say, less than banner economic climate.
 
Part of the rule provides a “clawback” provision. Each TARP Recipient is required to ensure that any bonus paid during the TARP Period to a senior executive officer is subject to clawback by the TARP Recipient if the payments were based on financial statements determined to be materially inaccurate. The Arnold & Porter round-table knocks around the clawback at length, providing solid guidance for practitioners, educators and related professionals alike. 
 
Personally, I love the word choice: clawback. It is heavy with implied menace and violence: one claws one’s way back from the edge of the grave, not from the supermarket. I think noting this imagery, while admittedly a little fanciful, is not without import. The chosen term is menacing because having a company dig its metaphorical claws into a bonus and pull it back is decidedly NOT something a corporation wants to see happen, even though the corporation might benefit from receiving it’s money back. Inaccurate financials will likely lead to more unpleasant results (potential lawsuits and SEC actions) than a bonus clawback – it is a refund received under a cloud of ill omen, like a wish made with a monkey’s paw.
 
The best English teachers freely admit that most authors only intend about 50 percent of the imagery that they and their eager students cull from the authors’ texts. However, even if the author did not intentionally create a discrete thematic element, that does not mean analysis of that particular element will not help illuminate meaning. Similarly, even if the authors of the rule did not intend the doom implied in the term “clawback” that does not mean it is not there to even further warn TARP recipients that a clawback is (of course) to be avoided at all costs.  
 
Please click here for the Arnold & Porter podcast.
 
Please also see an earlier posting of mine on the subject of executive compensation entitled, Forgive me For Being Rude But…