Market Standards: Trends in Clawback Provisions

The SEC recently adopted new rules that will require publicly traded companies to “claw back” incentive-based executive compensation that a company awarded to the executive based on materially misreported financials, which later required an accounting restatement, regardless of whether the restatement was caused by the individual’s misconduct. SEC News Release (Oct. 26, 2022); Prepublication draft.

According to Market Standards, out of 1086 employment agreements surveyed from October 31, 2021 to October 31, 2022, 96 of 213 agreements with CEOs in companies of market caps greater than $100M already have clawback provisions (see the search results in Market Standards-Employment Agreements).  Typical provisions refer to a separate policy (e.g., “Compensation paid to you by the Company will be subject to the Company’s Clawback and Forfeiture Policy, as amended from time to time”) or the provision is set forth in the agreement (e.g., “The optionee’s right to the Option granted hereunder and the Shares acquired upon exercise of the Option shall in all events be subject to (i) any right that the Company may have under any Company recoupment policy (as amended from time to time), or other agreement or arrangement with the Optionee, or (ii) any right or obligation that the Company may have regarding the clawback of ‘incentive-based compensation’ under Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission”).

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• Clawback Policy Design and Tax Issues
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  Refer to this checklist outlining considerations for companies contemplating the implementation of a compensation recoupment, or clawback, policy.

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