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In an attempt to sharpen the tools available to boards in the wake of a scandal, companies are amending otherwise standard clawback provisions or looking beyond clawbacks altogether. Indeed, following the MeToo movement, policies were expanded to include for-cause termination, misconduct and, in rare cases, sexual misconduct, as Agenda has reported. That trend has continued, according to regulatory filings and attorneys, but the lever is not always easy to pull.

Up against the potential for litigation and other challenges that stem from recouping compensation already paid out to executives, boards are now looking to draw out payout time lines, says Deb Lifshey, managing director at Pearl Meyer.

After Dodd-Frank directed the Securities and Exchange Commission to write a rule on clawbacks, companies quickly mimicked the language in the proposed regulation, even as it remained unfinalized. Provisions have evolved to include additional triggers as companies’ focus on corporate culture and executive conduct has intensified. But, Lifshey says, without referring to any specific companies, it remains an “ugly” and “complicated” process to attempt to recoup money once it has been paid out.

“So a lot of companies, rather than granting things now, they are doing it over a longer period of time, so that the payments are spread out and so that they can stop [payments] if needed,” Lifshey says. “Anything that just pushes the payment out … which works a lot better than trying to get it back.”

Still another option is to defer compensation. Clawbacks present challenges and salary cuts will not hit the pockets of former executives in a meaningful way.

Lifshey says this is exactly what many companies are doing. Yes, the list of triggers has expanded in recent years, which may give boards more room to recover pay from an executive. Still, once a payout is made, companies face potential litigation and an executive who does not want to hand money back. And for the executives, there are tax implications with a clawback because they have oftentimes already paid taxes on what was paid out by the time a company seeks to recoup the pay, she adds.

So Lifshey says she is seeing longer vesting periods in addition to deferred payouts, even when it comes to severance, so that companies “can stop something before it’s paid out.” These practices “are evolving over time, and they are evolving in a way that is probably less executive-friendly.”

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