Shareholder Attempts to Add Clawback Provisions Fail

Shareholder Attempts to Add Clawback Provisions Fail

In a recent trend, shareholders (primarily led by union pension funds) of large public companies have
been pressuring compensation committees to add clawback provisions to executives’ contracts.
Shareholders site previous examples of executives causing undue financial or reputational harm to
their organizations as the reason for the need to add these provisions to compensation agreements.

Outcome

There have been many instances of shareholder attempts to add clawback provisions to
executive contracts, the two highest profile coming from Alphabet, Inc. and Mylan N.V. In each
case, the proposal was brought to a vote either in the annual shareholder meeting or via proxy
cards and in each case the proposal was voted down. Prevailing wisdom says this is due to
compensation committees taking responsibility for malfeasance of executives and
recommending the proposals be voted down.

Solutions

Under a deferred compensation arrangement, executive performance-based pay remains on
the company balance sheet without the executive having access until a future date. Deferred
Compensation plan documents can even be drafted to include clawback or withholding
language to recoup compensation in the types of situations described in shareholder proposals
above. These sorts of arrangements afford the compensation committee tremendous
flexibility in deciding when and if to make cash distributions to executives, providing a device
with which they can retain pay autonomy if an executive causes harm to the company.

If you would like to explore the ways in which a non-qualified plan can protect your company,
Mullin Barens Sanford Financial can help navigate these complex issues. Please reach out to
a Mullin Barens Sanford Financial consultant with any specific questions you may have.

 

Through a powerful combination of independence and experience, Mullin Barens Sanford Financial and Insurance Services (MBS Financial) is a leading consulting firm that assists companies with 409A and other executive benefit needs.