Clawback provisions go mainstream, add reach Clawback provisions go mainstream, add reach

February 15 2012

It’s still early in the year, but “clawback” could be the word that haunts bankers’ dreams in 2012.

After prodding from New York City comptroller John Liu, Goldman Sachs Group and Morgan Stanley recently disclosed details of the circumstances under which they could reclaim compensation from risk-taking traders and their bosses. Earlier this week, Swiss bank UBS AG said it would implement a large-scale clawback, restricting bonuses for top earners in its investment banking division after misdeeds by a rogue trader cost the bank $2.3 billion.

Executive compensation experts say clawback provisions are becoming increasingly mainstream and wider in scope, encompassing a broader array of trigger events and types of compensation. Some see this trend as a sign of progress and increased accountability in the freewheeling financial sector; however, some banks are already finding ways to use these clauses to their own advantage.

“I think once you get someone stepping out and saying, ‘We’re doing this,’ two things happen,” said Steven Hall, managing director of Steven Hall & Partners, an executive compensation consulting firm. “First, companies feel a little stronger in doing these kinds of things themselves; they’ve got an example to point to. Secondly, it probably makes executives a little more nervous about what they’re doing” he said. In theory, this makes it less likely that top brass will cultivate a culture of excessive risk-taking.