Pay It Back if You Didn’t Earn It

READY for some good news from your humble research assistant? During this proxy season, almost 300 companies adopted provisions allowing them to recover executive pay that they find to have been based on incorrect financial statements. Four years ago, such clawback policies were found at only 14 companies.

Only in executive payland would figures like these qualify as progress. But having boards agree to go after pay that was not in fact earned is, oddly, still something of a battle. Although pay for nonperformance — or even failure — seems an obvious no-no, shareholders have had to push hard in recent years to have companies institute such provisions.

The data on the growing acceptance of clawback provisions emerged in a study by the Corporate Library, an independent research concern specializing in executive pay and corporate governance. It surveyed 2,121 companies and found that 295 of them, or 14 percent, had clawback provisions. The most common — in 131 cases — were those that kick in when fraud is uncovered. But a good number — 115 — are related to performance pay that was later found to have been improperly awarded because it was based on incorrect figures rather than malfeasance.

This is only proper. Corporations go to great lengths to establish benchmarks for financial performance that must be met before incentive pay is received. Why should executives keep that compensation if it is discovered later that the benchmarks went unmet?

NY Times