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Executive Compensation Clawbacks. Ann Graham, JD, MBA Professor of Law Director, Business Law Institute Hamline University School of Law Banking Law Prof Blog: http://lawprofessors.typepad.com/banking/. Executive Compensation Clawbacks. Public Outrage:
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Ann Graham, JD, MBA
Professor of Law
Director, Business Law Institute
Hamline University School of Law
Banking Law Prof Blog: http://lawprofessors.typepad.com/banking/
Make the Bad Guys Give the Money Back!!!
Emergency Economic Stabilization Act of 2008 (10/3/08) – (“EESA”)– Establishes TARP
Requires Financial Institutions receiving TARP funds to establish clawback standards
Trigger: Bonus or incentive compensation paid is based on statements of earnings, gains, or “other criteria” that are later proven “materially inaccurate”
NOTE: Misconduct not required, Restatement not required
Senior Executive Officers: CEO, CFO, next 3 most highly compensated execs
Compensation recovered: Bonuses & Incentive Compensation
Big Banks repaid TARP funds, avoided clawbacks & executive compensation caps
Smaller Banks repaid Capital Purchase Plan (CPP) funds from other government programs
GAO Report (3/8/2012) - http://www.gao.gov/products/GAO-12-301
Other Bank Bailout statutes & regs have different standards:
TARP Press Release – Guidance (2/4/09)
Capital Purchase Program (CPP) – Guidance
American Recovery & Reinvestment Act of 2009 (2/17/09)
Institutions receiving TARP funds
5 SEOS and next 20 most highly-compensated
Based on statements of earnings, revenues, gains, or other criteria that are materially inaccurate
Note: Misconduct not required
Accounting Restatement not required
Duration: Clawback requirement applicable during period financial assistance remains outstanding
Senior Executives & Directors – substantially responsible for the failure of an insured institution
Recover: Any compensation received during the 2-year period prior to FDIC’s appointment as Receiver
In the case of Fraud
Authority: § 203(b) of Dodd-Frank
FDIC: “Compensation” is salary, bonuses, incentives, benefits, severance pay, deferred compensation, golden parachute & all other compensatory items
ISSUE: D&O Insurance Rider
July – December 2012
Consequence for company: Possible delisting
When does triggering period commence? Decision to file restatement or when it occurs
Definition of “Executive Officer”
Definition of “Incentive-Based Compensation”
Clawback based on award or payment of compensation?
Company Purpose: SH, EE, Public Perception
Is It Enforceable?
Get consent of affected executives in writing up front
Best Practice for Private Company?