HomeNewsWhy Your Executive Employment Agreement May Reference Dodd-Frank Clawback Policy

Why Your Executive Employment Agreement May Reference Dodd-Frank Clawback Policy

Executives in Chicago may be puzzled to begin seeing vague references to new compensation clawback policies in their executive employment agreements. Section 954 of the Dodd-Frank Wall Street Reform Act requires, as a condition of the employer’s securities being listed on a national securities exchange or association (such as NYSE, NASDAQ, etc.), if the employer must restate any financial statements because of “material noncompliance” with the securities laws, then the issuer will recoup from any current or former executive officer during the 3 years preceding the date the employer had to restate those financial statements all amounts paid in incentive based compensation that exceeds what would have been paid under the restated financials.

Executive Compensation lawyers who advise employers mostly agree the executive employment agreements need to mention the clawback policy. However, the employers’ lawyers advise to avoid being specific about the terms of the clawback policy in the employment agreement because as the Securities Exchange Commission issues regulations under Dodd-Frank, those policies will likely be amended or updated.

As the executive, however, you want to know what is in that clawback policy. You also want your agreement to delineate whether you are one of the executives to whom Dodd-Frank will apply. Though the SEC has not yet issued regulations defining the term, most believe the definition will either mirror or closely resemble that found in Rule 3b-7, which includes the President, VP of any operating division, or anybody else with similar policy making authority.

If you are an executive of a publicly held company and have questions about the Dodd-Frank Wall Street Reform Act or about your employment agreement, call an Executive Compensation lawyer.

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