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New York Times, March 31, 2007 article


The New York Times

Executive Pay: Proxy Season

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March 31, 2007

Intel Can Recover Bonuses It Shouldn’t Have Paid

More companies are instituting policies that appear to help them recover incentive pay if they have to restate their financial results and it turns out that executives did not deserve the extra pay. But compensation experts warn that not all of these provisions have teeth.

A new one that does was recently disclosed by Intel, the maker of computer chips, in its proxy. It allows a clawback of annual bonuses and stock sale proceeds that were generated by an error or a misstatement that affected the company’s results. According to Intel’s filing, there is no need to show that the executive engaged in fraud or misconduct, as is common among these provisions. All that is required is a showing that the bonus was paid in error.

While the annual incentive clawback does not apply to all participants in the bonus plan and “allows” rather than “requires” a recovery of the money, it is better than many other provisions requiring that an executive be shown to have engaged in misconduct before the money can be recovered.

Michael Kesner, principal at Deloitte Consulting in Chicago, said that clawbacks should not be limited to individuals who were engaged in the misconduct that led to an overpayment of bonuses. “If amounts are paid in error, the company should reserve the right to recoup cash or stock awards from anyone who benefited from the error,” he said. “I would expect the board to use its judgment, and in most cases, limit the recoupment to the executives, since a $2,500 bonus paid to someone making $60,000 per year is probably long gone or invested in an I.R.A.”


Copyright 2007 The New York Times Company




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