Dodd-Frank Clawbacks: Backcasting to Measure Recoupment

On July 1, 2015, the SEC proposed new rules relating to “clawback” policies for executive compensation. The proposed Dodd-Frank clawbacks are very different from clawbacks required under Sarbanes-Oxley, as Dodd-Frank requires compensation recoupment in cases of financial misstatement, even without any intent of wrongdoing.

In this Issue Brief, we discuss one technique for measuring the compensation that would have been earned “but for” the financial misstatement. Since no firm expects to have a restatement, we suggest the proactive action item is to socialize upfront the proposed rule and how to enforce a clawback so that if there ever is a restatement all parties will have a framework to operate from.