If you are involved in SEC reporting, you have likely been hearing about clawbacks of executive compensation. The SEC, as required by Dodd/Frank, has proposed a new rule about clawbacks. You can see the SEC’s press release about the proposed rule at:

www.sec.gov/news/pressrelease/2015-136.html

The press release also has a good summary of the proposal and a link to the text of the proposed rule. (The link is near the top of the press release on the right side of the page.)

This rule proposal has created a fair amount of commentary and discussion, as anyone would expect.

That said, courtesy of Section 304 of SOX, clawbacks have been in play before this proposed rule. And this SOX provision has some teeth. Diebold Corporation, in the wake of a settled accounting fraud enforcement action, was required to clawback compensation from its CEO. Here is an interesting quote from the press release announcing the various enforcements:

“The complaint does not allege that (the CEO) engaged in the fraud.”

You can read the release at:

www.sec.gov/litigation/litreleases/2010/lr21543.htm

So, what is the reason that Dodd/Frank requires more rule making about clawbacks? One of the principal differences concerning clawbacks between Dodd/Frank and SOX is that SOX requires clawbacks when a restatement arises from accounting fraud.

Dodd/Frank moves things to a higher level because it will require clawbacks for any material restatement, regardless of cause. So even an unintentional error will trigger a clawback requirement.

In a sense, this is a bit like the SOX whistleblower hotline compared to the Dodd/Frank whistleblower hotline. SOX requires an anonymous hotline to the audit committee, Dodd/Frank goes a step further and created the anonymous hotline directly to the SEC.

As always, your thoughts and reactions are welcome!