Clawback Provisions

Abstract:     
In a comprehensive sample of company-adopted clawback or “recoupment” provisions for S&P 1,500 firms, reported usage climbs over the decade from less than 1% in 2000 to almost 50% in 2011 (70% for S&P 500 firms). Firms are more likely to adopt a clawback provision when: there is prior executive malfeasance at the firm; malfeasance is harder to detect; there is more scope for malfeasance; governance is “better”; and executives have compensation-related reasons to misrepresent firm performance. The policy extends to more employees and covers more components of compensation when the firm is more complex and when there is more potential for employee malfeasance. Adoption of a clawback is associated subsequently with higher executive pay, proportionally more equity-based executive pay, and higher executive turnover

Number of Pages in PDF File: 65

Keywords: clawback, recoupment, recover, executive compensation, employee pay, accounting restatement, fraud, corporate governance

JEL Classification: G32, G34, J33, M41, M52, M55

working papers series