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Section 954 of the Dodd-Frank Act requires national securities exchanges (meaning, for instance, the NYSE, Amex and Nasdaq) to adopt rules as directed by the SEC, which rules will require issuers to develop and implement a policy providing:

  • for disclosure of an issuer’s policy on incentive compensation that is based on financial information required to be reported under securities laws; and
  • that, if an accounting restatement is prepared, the issuer will recover any excess incentive-based compensation from any current or former executive officer who received such incentive-based compensation in the three preceding years.

Rules regarding Section 954 of the Dodd-Frank Act have not yet been proposed or finalized.  However we reviewed recent SEC filings to see what public companies are doing to prepare for the eventual adoption of the rules related to clawback policies.

 Adoption of Clawback Policies

 Robbins & Myers. The board of directors of Robbins & Myers, Inc. adopted a compensation clawback policy  and approved a compensation clawback acknowledgement and agreement. The form of acknowledgement and agreement provides that all annual incentives and other performance-based compensation granted on or after October 1, 2010 are subject to the clawback policy. The policy provides that the employee must repay or forfeit any annual incentive or other performance-based compensation as directed by the board of directors of the company if:

  • the vesting of such compensation was based on the achievement of financial results that were subsequently the subject of a restatement of the company’s financial statements,
  • the employee engaged in fraud or misconduct that caused or contributed to the need for the restatement,
  • the amount of such compensation that would have been received by the employee would have been lower than the amount actually received, and
  • it is in the best interests of the company and its shareholders for the employee to repay or forfeit the compensation.

Caplease.  Under Caplease, Inc.’s recently adopted clawback policy, the board of directors may recover incentive compensation paid to any current or former executive officer of the company if all of the following conditions apply:

  • the company’s financial statements are required to be restated due to material non-compliance with any financial reporting requirements under the federal securities laws (other than a restatement due to a change in accounting rules),
  • as a result of such restatement, a performance measure which was a material factor in determining the award is restated, and
  • in the discretion of the compensation committee, a lower payment would have been made to the executive officer based upon the restated financial results.

The clawback policy applies to any incentive compensation paid on or after December 7, 2010 and the recovery period is the three year period preceding the date on which the company is required to prepare the accounting restatement.

 Employment Agreements

 Signet.  An employment agreement for a new CEO of Signet Jewelers Limited provides “[t]he Executive shall be subject to the written policies of the Board applicable to executives, including without limitation any Board policy relating to claw back of compensation, as they exist from time to time during the Executive’s employment by the Company.”

 SuperMedia.  An employment agreement for a new CEO of SuperMedia Inc. provides “[n]otwithstanding any other provision in this Agreement to the contrary, any “incentive-based compensation” within the meaning of Section 10D of the Exchange Act will be subject to claw-back by the Company in the manner required by Section 10D(b)(2) of the Exchange Act, as determined by the applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission.”

Benefit Plans

Dover.  Dover Corporation recently adopted a severance plan and a change-in-control severance plan.  Each plan gives the corporation the right to recover amounts paid to an executive under the respective plan “if required under any claw-back policy of the Corporation as in effect from time to time or under applicable law.”

NACCO.  Nacco Industries, Inc. recently amended its Value Appreciation Plan to provide “[t]he Employers may recover all or a specified portion of any Award paid after the Effective Date under the Plan . . . in the event the Participant, either during employment with the Employers or within two years after termination of such employment, commits an act materially adverse to the interests of the Employers or that materially disrupts, damages, impairs or interferes with the business of the Company and its affiliates.

Dominion Resources.  The grant agreement for a recent award of restricted stock to the CEO of Dominion Resources, Inc. includes provisions regarding:

  • recovery of shares in the event of restated financial statements as a result of fraud or intentional misconduct;
  • recovery of shares in the event of fraudulent or intentional misconduct materially affecting the company’s business operations; and
  • the award is subject to any clawback policies the company may adopt to conform to the Dodd-Frank Act.

Check frequently for updates on the Dodd-Frank Act and other important securities law matters.