Clawbacks have actually been around for a while, but were usually used to enforce restrictive covenants such as “noncompete” clauses of contracts. For example, Gary Crittenden, chief financial officer of American Express, was forced to give back an undisclosed portion of his incentive pay when he left to become Citigroup’s CFO in 2007.

Clawbacks were given some real teeth when they were included in the 2002 Sarbanes-Oxley Act. Under Section 304 of the law, if a company is forced to make an accounting restatement as a result of misconduct, the CEO and CFO can be forced to repay incentive or equity-based compensation.

The Securities and Exchange Commission has used the law selectively. In its first and biggest use of Section 304, William W. McGuire, the former chief executive of UnitedHealth Group, was forced to pay back $600 million worth of stock and options he received over a 12-year period. The SEC alleged that McGuire had caused UnitedHealth to issue backdated options.

While the law has been used by the SEC against a handful of executives accused of misconduct, the SEC in July announced that it is broadening the scope of the provision to claw back incentive pay from an executive who was not accused of any wrongdoing. It asked a court to order the return of $4.1 million in incentive pay given to Maynard Jenkins, former CEO of CSK Auto, a Phoenix Arizona, car-parts company. While other former executives at the firm were accused of wrongdoing, Jenkins was not.

Although many companies now include clawback provisions as a standard part of their executive pay packages, there have been very few instances where they have been used to recover money already spent. James F. Reda, a New York-based compensation expert, says that’s because taking an executive to court can prove to be costly. “It’s really difficult to define bad behavior, and if you are talking about a lot of money, you’re subjecting yourself to extensive litigation,” Reda said. “Sometimes it’s more expensive to litigate than it is to pay.

Reda suggests companies would be better off paying a substantial part of an executive’s salary in stock that can’t be sold for three or four years. ‘If it turns out there will be a restatement, the stock market is going to punish that stock substantially and a lot of your compensation is going to be clawed back by the market, and it doesn’t require any type of legal action.”

Wharton’s Cappelli thinks it’s appropriate that executives at big firms face more risk in their compensation. “If we’re offering big upsides, then it’s reasonable to require big downsides,” he said. “And if people know what they are getting into, it’s obviously more fair than doing it after the fact.”