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.”
Executive Pay: Proxy Season
The New York Times spotlights the one season a year when shareholders can express their opinions on management.