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Investors are pushing companies to go beyond the recent Securities and Exchange Commission rule requiring businesses to claw back executive pay in the wake of financial restatements and also implement mandatory policies to recoup compensation in cases where top bosses engage in misconduct or when an enterprise has suffered reputational damage.

Experts say companies are well positioned to comply with the new rule but should consider making some of their discretionary policies mandatory and review their accounting and compliance programs.

However, Deborah Lifshey, a managing director at executive compensation consultancy Pearl Meyer, has heard soft murmurs in the market about boards that are considering ways to make all executive compensation discretionary to avoid issues related to the clawback rule. But she and other experts say such conversations are unlikely to be implemented due to the potential of pushback from investors.

Proxy advisors such as Glass Lewis have articulated their concerns about discretionary executive pay in their guidelines for 2022.

“One trick is you can make your entire compensation plan discretionary, but obviously investors will not like that,” said Lifshey. “Another thing that I’ve heard people talking about is making some sort of umbrella plan. So that pool is funded with discretionary amounts. So that if you do have a restatement, the amount is not different because the pool would have been funded based on discretion. But I haven’t seen a lot of people dedicate that much time to it. Most people are just saying, OK, we need to put this in place. This is now required by the SEC.”

Overall, experts anticipate that companies will make sure to be compliant with the new SEC rule. Some may also implement broader claw back policies triggered by reputational harm. “And that rule, because it’s not required, might be a little bit fuzzier so that the board has discretion to claw back in the event that misconduct happens, which includes reputational harm,” said Lifshey.

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