Equitable Clawback: An Essay on Restoration of Executive Compensation

University of Pennsylvania Journal of Busines Law, Vol.12, 2010

22 Pages Posted: 20 May 2009 Last revised: 12 Feb 2010

Manning G. Warren III

University of Louisville - Louis D. Brandeis School of Law

Date Written: May 19, 2009

Abstract

The remedy of restoration of compensation, known in the agency context as the faithless servant doctrine, provides for the corporate principal's recovery of compensation previously paid or payable to corporate officers and other agents who have breached their fiduciary obligations. Although a limited clawback provision was one of the reforms enacted as part of the Sarbanes-Oxley Act, courts have refused to imply a private remedy, and, even if they were to do so, it would be of limited utility. Given the many variations of the clawback concept, including the demands for clawback of AIG and Merrill Lynch bonuses and of pre-bankruptcy returns paid to Madoff investors, I have chosen to distinguish the equitable remedy of restoration of compensation as equitable clawback. My essay contends that the remedy's increased recognition and broader use would add primacy to individual versus entity liability, and, consequently, help reestablish the link between executive wealth and executive responsibility.

Keywords: executive compensation, fiduciary duties, faithless servant doctrine, forfeiture of compensation, restoration of compensation, equitable clawback, executive overcompensation, corporate officers, restitutionary remedies, unjust enrichment, entity versus individual responsibility, employment law

JEL Classification: G35, J33, K22, M14, M52

Suggested Citation

Warren, Manning G., Equitable Clawback: An Essay on Restoration of Executive Compensation (May 19, 2009). University of Pennsylvania Journal of Busines Law, Vol.12, 2010. Available at SSRN: https://ssrn.com/abstract=1407129 or http://dx.doi.org/10.2139/ssrn.1407129

Manning G. Warren III (Contact Author)

University of Louisville - Louis D. Brandeis School of Law ( email )

Wilson W. Wyatt Hall
Louisville, KY 40292
United States

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