Sunday, July 10, 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:
We explain why firms should have a policy requiring directors to recover “excess pay” – payouts to executives resulting from an error in compensation metrics (such as inflated earnings). We then analyze the clawback policies voluntarily adopted by S&P 500 firms as of 2010 and find that only a small fraction had such a policy. Our findings suggest that the Dodd-Frank Act, which requires firms to adopt a clawback policy for certain types of excess pay, will improve compensation arrangements at most firms. We also suggest how the types of excess pay not reached by Dodd-Frank should be addressed.