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Corporate boards across the U.S. are weighing whether bosses who lose their jobs for bad behavior should surrender part of their compensation.
Several high-profile executives resigned or were ousted in the past year following allegations of misconduct, leaving the companies to deal with the fallout, which can include a damaged reputation, angry customers and a battered stock price.
Giving boards more leeway to recoup pay from those guilty of sexual harassment and other inappropriate behavior could provide a deterrent but clawing back money under such circumstances may be easier said than done.
“The thinking is, if you’re doing something that’s not fraudulent but is inappropriate and perhaps impacts the share price, why wouldn’t it warrant a clawback?” said Aalap Shah, a managing director at executive-compensation consultant Pearl Meyer.
Broadening clawback policies to include a wider definition of misconduct would give boards more room to punish individuals without facing the risk of squaring off in court with disgruntled former executives. But it could also pose complications.
Boards also must decide whether clawbacks should apply only to the bad actor, or also to superiors or colleagues who may have known about the misdeeds but turned a blind eye or failed to act, said Pearl Meyer’s Shah.
“It does prompt the question whether incentive plans should have some governing criteria about adherence to cultural objectives,” Shah noted.