Regulators will make public companies take back executives’ incentive pay if they find significant errors in financial statements, aiming to improve corporate accountability at a time of rising shareholder discontent over pay practices.
The Securities and Exchange Commission voted 3-2 Wednesday to complete the so-called clawback rule, with all Democrats approving and Republicans dissenting. Required by the 2010 Dodd-Frank Act to discourage fraud and accounting mischief, the rule’s implementation has been delayed for years.
The approved rule will apply clawback provisions broadly to public companies, extending a practice that has become widespread in compensation agreements set by corporate boards in recent years. However, those voluntary policies sometimes set a high bar for recouping previously awarded compensation and can be difficult to enforce. That has led some companies to withhold executives’ incentive pay for longer periods to avoid the hassle of having to get it back after the fact.
Source: Accounting Errors to Cost Executives Their Bonuses Under SEC Rule – WSJ
