Voluntary adoption of clawback provisions, corporate governance, and interlock effects

We examine the relationship between a company’s governance structure and the early adoption of management compensation clawbacks. We construct an index of whether governance tends toward relative management entrenchment versus monitoring and find that ostensible management entrenchment makes a clawback provision less likely. Furthermore, we examine whether social networks by the compensation committee with other adopters (interlocks) affects the likelihood of adoption, potentially by providing information from other decision-makers evaluating adoption. We find that interlocks by directors on the compensation committee with other companies with clawbacks increase the probability of a clawback. In addition, not all clawbacks are the same. We find that companies with clawbacks that are patterned after SOX are most common and are associated with monitoring-oriented governance and interlocks. Dodd Frank did not yet exist, but we find that clawback policies that would be compliant with Dodd Frank or are otherwise innovative are not associated with our measure of governance.