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Clawback Provisions Soar

More companies are voluntarily enacting polices requiring errant executives to return cash and stock incentives if erroneous reporting leads to a restatement.

By Staff Writer | Updated on August 01, 2008

The number of companies introducing clawback provisions has skyrocketed over the last five years, according to a new survey by The Corporate Library. About 329 of the 2,100 businesses surveyed have adopted provisions to recover cash and stock incentives in cases where financials have been misstated. That’s compared to just 14 companies with a clawback policy in 2003, the last time the corporate governance research firm looked at the issue.

Why the increase? In some cases, companies have decided that it’s simply good governance to voluntarily go a step beyond Sarbanes Oxley, says Paul Hodgson, the Corporate Library’s senior research associate, executive and director, compensation. The regulation requires that top executives give back incentive compensation and stock sale profits in a year prior to a restatement caused by misconduct. Other companies have been pushed by activist shareholders. For example, last year, Home Depot adopted a clawback provision after a stockholder proposal to introduce one was voted in.

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