Thinking Ahead: mandated clawbacks under Dodd-Frank are coming

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) is widely viewed as the "say on pay" legislation, but its clawback requirements will likely spark contention and litigation for years to come. Under the new law, which took effect last summer, listed companies must develop and implement a policy regarding clawbacks of erroneously awarded incentive-based compensation paid to executive officers. The main thing that makes the Dodd-Frank clawbacks different from those in place at public companies to comply with SOX or the Troubled Asset Relief Program, is that executive misconduct will no longer be the trigger. Like other laws that regulate executive pay, the Dodd-Frank clawback requirement seems certain to have some unintended consequences. Executives wary of the accuracy of an employer's financial statements may request more guaranteed compensation -- rather than incentive compensation or stock options -- before accepting a job.