Clawbacks Gain Favor at Big Companies

When a company restates its financials, seldom a word is heard about recouping the executive pay that was awarded based on that incorrect information. But, the biggest companies are wising up (perhaps because they have the most at stake), a new study has found.

Retrieving that money - called a clawback - is nearly four times more common at S&P 500 firms than at smaller companies, according to The Corporate Library, a corporate pay and governance research firm.

Its analysis of 2,500 companies found that retrieving unearned executive pay was still relatively rare - only 329, or about 13 percent, of the companies have clawback provisions.

Almost half of the companies studied had provisions that are triggered when fraud is involved to manipulate financial results. About one-third invoked clawback provisions when pay awarded for performance was awarded based on incorrect financial figures. Two-thirds tie clawbacks to noncompete clauses to make sure departing executives don't use company secrets to land a better job.

At last so far, few companies have demanded such reimbursement - even though there are plenty of corporate financial restatements.

Warnaco Group cut incentive pay for three executives after a 2005 restatement that resulted from accounting errors and other irregularities, according to The Corporate Library. The three were docked $120,000.

But with the wave of problems at financial institutions - Citigroup, for example, has a policy to retrieve pay, or to cancel certain stock or option grants, in the event of a financial restatement - there may be more to come.

by Elizabeth Olson

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