Clawback Surveys

2015.Feb.08  New Clawback Survey and 2015 Accounting Twist.  For detailed information about the design of clawbacks, see this PwC survey drawn from proxy statement disclosures by 100 large public companies. Of more immediate concern than the survey results is the discussion under "Accounting Considerations" that appears on page 5, because it reiterates recent warnings that some clawback features -- such as those triggered by performance results or related to the extent of employer discretion may trigger mark-to-market accounting (which is generally a nightmare).  The issue has many shaking their heads and waiting to see if this is more than a theoretical risk. Otherwise, the survey indicates little change from the results noted below from May 2014. PwC's surveys are nonetheless excellent resources because they cover many of the most important design features that employers -- and corporate directors -- should be considering.

2014.May.25   Survey of Top-100 Companies - Highlights from PwC's April 2014 Survey include 92% of companies impose clawbacks in the case of material financial restatements, with nearly three-fourths of those clawbacks being triggered by executive fraud or misconduct, and the others being strict liability. Interestingly, fraud alone triggered clawback rights in 44% of the policies surveyed, while only 22% involved violation of post-employment non-competition agreements.

2010.08.29   Survey of Clawback Practices, with sample provisions - by Frederic W. Cook & Co. Here are highlights and quotes from the survey, which covered "the 100 largest U.S. companies in the Standard & Poor’s 500 Index, using market capitalization as of February 28, 2010":

  • 77% of the surveyed companies impose some form of clawback (or recapture) right.
  • 71% of the clawbacks are set forth in stand alone policies; 29% are within award agreements.
  • With respect to trigger events for the clawbacks --
  • 95% involve financial restatements, with 60% also requiring executive misconduct.
  • 26% involve breach of loyalty covenants (such as trade secret, non-competition and related business protections).
  • 19% involve solely executive fraud or misconduct (without need for a financial restatement).
  • "Among companies with policies, 54% limit coverage to Section 16 executive officers, 25% apply to all incentive plan participants, 18% cover all senior executives, and 3% affect proxy officers only."
  • 87% of policies "covered both cash and equity compensation, 12% covered cash incentives only, and 1% covered only equity."
  • "Recapture policies are typically enforced and interpreted by the Board of Directors (47% of companies with a policy) or the Compensation Committee (42%)."Survey of Clawback Usage (10/12/2010) by Compensation Advisory Partners finds that 80% of 85 surveyed public companies impose some form of clawback provision. Of the surveyed companies with a clawback, the triggering events are (i) for almost all, a financial restatement; (ii) for 71%, fraud or misconduct, (iii) for 18%, violation of a non-compete/non-solicitation/confidentiality covenant, and (iv) for 4%, and improper 'risk analysis'.

2010 Equilar Report:  (per Equilar news release) This report focuses "on clawback policies in the Fortune 100. This new study found that 82.1 percent of Fortune 100 companies have some kind of clawback policy - a major increase from 2006, when just 17.6 percent had one. The industry with the most prevalence of clawback policies is Financial, Insurance, and Real Estate, due to the mandatory clawback requirements of TARP. 90.5% of companies in that industry had a clawback policy in 2010, compared to 82.4% in 2009 and 50% in 2008. The report also offers guidance about the potential effects of the new Dodd-Frank legislation on clawback policies."

2009  Equilar Report.  See the following direct quotations published by Equilar:  

  • Clawback Policies Continue to Grow in Prevalence: From 2006 to 2009, the prevalence of Fortune 100 companies with publicly disclosed clawback policies increased from 17.6 percent to 72.9 percent. The majority of these policies allow companies to take back compensation in the event of a financial restatement or ethical misconduct.
  • Adoption and Amendments of Clawback Policies Peak in 2009: Among Fortune 100 companies that disclosed the implementation date for their clawback policy, 94.9 percent adopted or amended their clawback policy in calendar year 2006 or later. Of this group, 33.3 percent adopted or amended their clawback policy in calendar year 2009.
  • Most Clawbacks are Triggered by Ethical or Financial Misconduct: In 2009, 80 percent of Fortune 100 clawback policies included provisions allowing for the recovery of compensation in the event of a financial restatement. Moreover, 85 percent of clawback policies have provisions allowing companies to recoup pay in the event that an executive behaves unethically. In 2009, 67.5 percent of Fortune 100 clawback policies included provisions containing both financial restatement and ethical misconduct triggers.