Corporations are increasingly implementing executive compensation clawback policies that not only meet regulatory requirements but, in fact, reach beyond them.
The broad policies were spurred, in part, by standards put forward by proxy advisors over the past two years, and 2025 filings show major companies continuing that trend, comp consultants say. Directors should review proxy advisors' policies and major investors' stewardship guidelines on the rules and discuss how their own policies compare.
Indeed, there's been a visible increase in companies continuing to expand the scope of their clawback policies this proxy season, Matt Turner, president of executive compensation at Pearl Meyer, told Agenda.
He explained that companies are going beyond "simply calling for a clawback in the event of a financial restatement" to also providing for the potential for a compensation clawback in the case of reputational damage or other poor behavior by executives.
Other companies have broadened clawback policies to include elements of equity compensation not specified by SEC rules, and apply them to a larger group of executives.
But Turner told Agenda that he's also witnessed a visible increase in this year's latest round of proxy statements.
The SEC's clawback policy took several years to come to fruition. In the interim period between the passage of the Dodd-Frank Act and the SEC's finalization of the clawback rules, most large companies implemented policies that they thought, first, made sense for their companies, and, second, would be consistent with the SEC's rules. At the end of the day, the clawback policies ended up being a bit more expansive than what the SEC ultimately required, said Turner.
In a sense, through these expansive clawback policies, corporate America is accepting that other unique events can cause damage to a company beyond the quantitative impact from a financial restatement, and corporate leaders need to be paying attention to them, said Turner—calling it an example of good governance.
In December 2023, SEC rules required publicly listed companies to adopt clawback policies that provide for the recoupment of executive compensation in the event of an accounting restatement. Even so, proxy advisor Glass Lewis' 2024 benchmark policy guidelines state that, on top of meeting regulatory requirements, effective clawback policies should allow companies to recoup incentive compensation from executives in additional circumstances.
Those circumstances include when there's evidence of problematic actions such as material misconduct, a material reputational failure, a material risk management failure or a material operational failure, "the consequences of which have not already been reflected in incentive payments and where recovery is warranted," according to Glass Lewis.
Further, in October 2024, ISS updated its recommendation policy on executive comp to note that clawback policies "must extend beyond minimum Dodd-Frank requirements and explicitly cover all time-vesting equity awards," rather than just performance-based ones.
Asset managers have pushed for tougher standards as well.
Regarding clawback policies and the expansion beyond the SEC-mandated coverage of financial restatements, Turner referenced some triggers he's seen recently, including breach of fiduciary duties or the commission of fraud, termination of an executive due to felony charges or conviction, and actions or omissions that cause reputational harm to the company.
"I've also seen companies apply the clawback policy beyond executive officers to a broader set of employees, such as all incentive-eligible employees," Turner told Agenda in an email.
These broader cases for clawbacks are typically discretionary, meaning that board directors have the authority, but not the obligation, to apply a clawback. "In the case of the SEC requirement for financial restatement, the clawback is an obligation without discretion," Turner noted.