Published in Corporate Board Member - July 2010

Executive Compensation Clawbacks Under Dodd-Frank

By Deborah Lifshey

The Dodd-Frank Wall Street Reform and Consumer Protection Act signed July 21 extends the reach of mandatory clawback policies for executive compensation to include two key components:

• Companies must disclose policies to recoup any incentive compensation paid on the basis of erroneous financial information reported under securities laws
• Executives must repay any performance-based incentives, including stock options, provided during the three-years preceding the corporate restatement

This article discusses some of the ambiguities in the new regulations that will need to be resolved by more detailed SEC guidance, as well as the ramifications of Dodd-Frank on the design and administration of clawback policies going forward, as well as on corporate governance.