Statement on Rules Regarding Clawbacks of Erroneously Awarded Compensation

I support today’s action to re-open comment on the Dodd-Frank Act rule regarding clawbacks of erroneously awarded incentive-based compensation. I believe we have an opportunity to strengthen the transparency and quality of corporate financial statements as well as the accountability of corporate executives to their investors.

In today’s economy, corporate executives often are paid based on how the companies that they lead perform: things like revenue and profits of the overall business. Occasionally, however, the numbers the companies reported as the basis of that compensation aren’t accurate. In these cases, companies may have to go back and revise or restate prior financial reporting. As a result, an executive may have been paid for meeting certain milestones that the company didn’t, in fact, hit.

Over the last couple of decades, Congress has decided that executives should pay back that incentive-based compensation.[1] Congress first mandated these clawbacks under the Sarbanes-Oxley Act of 2002, requiring chief executives and chief financial officers to return incentive-based pay in cases of misconduct from the previous 12 months.

Following the 2008 financial crisis, Congress broadened those requirements. Among many reforms in the Dodd-Frank Act, Congress determined that, if a company has to revise its financial statements, executives should have to give back compensation paid in the three years leading up to the restatement that was based on the misstated financials — regardless of whether the misstatement was due to fraud, errors, or any other factor.

The release is now out for public comment. The public can submit comments at sec.gov.

I’d like to thank the SEC staff for putting together this thoughtful proposal. Specifically, I would like to thank Renee Jones, Steven Hearne, Connor Raso, David Fredrickson, Betsy Murphy, Anne Krauskopf, Lindsay McCord, Jessica Barberich, and Luna Bloom in the Division of Corporation Finance; Bryant Morris and Ken Alcé in the Office of the General Counsel; Jessica Wachter, Oliver Richard, Lauren Moore, Chantal Hernandez, Vlad Ivanov, and George Papadakis in the Division of Economic and Risk Analysis; Brian Johnson and Nathan Schuur in the Division of Investment Management; Paul Munter, John Vanosdall, Natasha Guinan, Omid Harraf, Peggy Kim, Jonathan Wiggins, Kevin Vaughn, and Carlton Tartar in the Office of Chief Accountant; and Heather Slavkin Corzo and Corey Klemmer in the Office of the Chair.