Sunday, April 3, 2011
Excess-Pay Clawbacks, by Jesse M. Fried, Harvard Law School, and Nitzan Shilon, Harvard Law School, was recently posted on SSRN. Here is the abstract:
The Dodd-Frank Act mandates that public firms adopt a policy requiring the clawback of certain types of “excess pay” – such as bonuses generated by inflated earnings. Academic commentators have criticized this requirement, arguing that private ordering will yield better arrangements than government fiat. Analyzing the clawback policies voluntarily adopted by S&P 500 firms prior to Dodd-Frank, we find that nearly 50% of S&P 500 firms had no excess-pay clawback policy whatsoever. In the remaining firms, clawback policies were designed to let executives keep excess pay in a wide variety of circumstances. Our findings suggest that private ordering did not yield adequate clawback arrangements before Dodd-Frank and that the Act will improve such arrangements at most public firms. We also suggest what boards should do about the types of excess pay not reached by Dodd-Frank.