Misconduct Clawback

Misconduct Clawback: 

Clawback provisions can help set a “tone at the top” that emphasizes compliance and ensure that employees do not benefit financially from conduct that is harmful to the company and to shareholders. 

Misconduct clawbacks are broader than the Dodd-Frank or Sarbanes Oxley clawbacks; the latter of which are only triggered when financial errors result in a financial restatement of earnings.  The triggers in misconduct clawbacks often reference violations of a company’s code of conduct which includes behavior that violates laws and regulations as well as behavior that may not result in termination but still exposes the company to financial, reputational, or legal risks.

Misconduct clawbacks can result in the recoupment of pay that has been already awarded or “out the door” or it can also apply to reductions in pay that has not yet been awarded or paid out. These compensation tools can be applied to short-term incentive arrangements such as bonuses or to long-term incentive plans or both.  Ultimately, the decision to recoup is ultimately made by the compensation committee.

The IOPA shareholder proposal requests that the board adopt a clawback policy to (a) recover incentive compensation in the event of a violation of a company policy relating to non-compliance with a law or regulation that causes significant financial or reputational harm to a company, including supervisory failures, and (b) require disclosure to shareholders in the proxy statement about such recoveries without violating privacy laws.

BlackRock announced its support of shareholder resolutions calling for the clawback of senior executive pay where “behavior caused direct financial harm to shareholders, reputational risk to the company or resulted in criminal investigation, even if such actions did not ultimately result in a material restatement of past results.  This includes, but is not limited to settlement agreements arising from such behavior and paid for directly by the company.” [1]

The IOPA proposal provides parameters for a policy and confirms the compensation committee’s authorization and as noted above, defers to compensation committees to make the ultimate decision to claw back or reduce payouts. IOPA investors seek to have these provisions included in plan and/or award documents so they are instutionaliized and as well apply to those senior executives the board deems important tin risk mitigation efforts beyond the five named executive officers reported on in the annual proxies.  Currently, under SEC rules, disclosures of clawbacks or reductions of the top five named executives is already required.

The IOPA proposal asks the board to adopt a clawback policy to (a) recover incentive compensation in the event of a violation of a company policy relating to non-compliance with a law or regulation that causes significant financial or reputational harm to a company, including supervisory failures, and (b) require disclosure to shareholders in the proxy statement about such recoveries. 

To date, seventeen IOPA companies have adopted clawback policies, including disclosure.  A full list and links to public documents describing the policy is provided below.

 

IOPA Companies that Agreed to Clawbacks and Public Disclosure

Company

Type

AbbVie - Page 46

Manufacturer

AmerisourceBergen  - Page 44 

Distributor

Amgen - Page 30

Manufacturer

Assertio Therapeutics

Manufacturer

Bristol Myers Squibb

Manufacturer

Cardinal Health - Page 34

Distributor

CVS - Page 39

Retailer

Endo, Page 11

Manufacturer

Gilead - Page 57

Manufacturer

Insys Therapeutics - Page 21

Manufacturer

Johnson and Johnson - Page 73

Manufacturer

Mallinckrodt - Page 25 

Manufacturer

McKesson - Page 52

Distributor

Mylan - Page 56

Manufacturer

Pfizer

Manufacturer

Viatris - (formerly Mylan/Pfizer Upjohn) Mylan's policy will be included in 2021 Viatris proxy

Manufacturer

Walmart, Page 66

Retailer

Walgreens - Page 68

Retailer

 



 

 

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