"Clawbacks" of executive compensation

With the continued spotlight on executive compensation, and with companies in the mortgage and finance industries facing ongoing challenges in the months ahead, the subject of recouping, or "clawing back," executive compensation in the event of financial statement errors likely will remain a focal point for boards of directors. Following the Enron and WorldCom corporate scandals and enactment of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), attention increased on the extent to which companies had the ability to recoup, or "clawback," incentive compensation awarded to senior executives if it were later determined that their activities significantly contributed to a financial statement restatement, which resulted in a determination that the executives had received unearned incentive compensation as a direct result of their own misconduct. There is no requirement under Sarbanes-Oxley, other SEC rules, or securities market listing standards that companies take steps to provide for the clawback of executive compensation.