Clark Consulting: Dodd-Frank Does Not Require “Clawbacks”

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A new white paper issued by Clark Consulting, LLC concludes that Dodd-Frank does not compel the use of any specific method of compensation recoupment including traditional “clawback” methods, “rather the statutory mandate is that each public company have a policy which will ‘recover’ erroneously awarded incentive compensation.” There are several valid alternatives to clawbacks that are far more effective and less expensive to enforce than clawbacks.

rather the statutory mandate is that each public company have a policy which will 'recover' erroneously awarded incentive compensation.

A new white paper issued by Clark Consulting, LLC concludes that Dodd-Frank does not compel the use of any specific method of compensation recoupment including traditional “clawback” methods, “rather the statutory mandate is that each public company have a policy which will ‘recover’ erroneously awarded incentive compensation.”

The whitepaper, from Clark Consulting’s Technical Resource Group, discusses effective incentive-compensation recoupment methods in light of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law on July 21.

Entitled “Fortifying Your Defenses: Choosing a Multifaceted Approach to Incentive Compensation Recoupment,” the white paper makes reference to the widespread assumption that clawbacks must be used in case of accounting restatements. It questions the effectiveness of clawbacks as a method of recovering unearned incentive compensation, and suggests that compensation committees use a multifaceted approach to incentive compensation recoupment that primarily relies on compensation “holdback,” which is a more effective recoupment method.

The Clark Consulting white paper explains key provisions of Dodd-Frank; specifically that it adds Section 10-D to the Securities Exchange Act of 1934, requiring the SEC to adopt rules that require all stock markets to modify listing standards so as to prohibit the listing of any company that does not have an incentive compensation recoupment policy in place.

A key finding of the white paper: “An additional solution that should be considered by compensation committees is to “holdback”—meaning the incentive compensation is not actually placed in the executive’s possession until it is clear that no restatement of the company’s financials will require the “recovery” of the incentive compensation. A nonqualified deferred compensation plan is a good vehicle for effectuating the “holdback” approach to incentive compensation recoupment.”

The Clark Consulting white paper “Fortifying Your Defenses: Choosing a Multifaceted Approach to Incentive Compensation Recoupment,” is available at clarkconsulting.com under Resource Library under Articles and White Papers > Deferred Comp.

About Clark Consulting, LLC:
Clark Consulting, LLC, headquartered in Dallas, is an AEGON company. AEGON N.V. is an international life insurance, pension and investment group based in The Hague, The Netherlands, with businesses in over twenty markets in the Americas, Europe and Asia.

Clark Consulting is a leading source of strategic financing solutions such as bank-owned life insurance (BOLI) and corporate-owned life insurance (COLI) for inefficiently funded and unfunded liabilities that result from executive and employee benefit programs.

Since 1967, Clark Consulting has assisted plan sponsors in implementing thousands of benefit plans and serves as the record keeper for billions in assets for leading American corporations and banks.

Securities products and services are offered through Clark Securities, Inc., DBA CCFS, Inc., in Texas: 2100 Ross Avenue, Suite 2200, Dallas, TX 75201-7906. Phone: 800.999.3125. Member FINRA and SIPC.

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Robert Frump
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