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Clawbacks in Play with SEC, Dodd-Frank

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Act 4, Scene 1—that’s where we are in the drama over corporate clawbacks. Put on stage by SOX (Sarbanes-Oxley), the clawback drama took its latest turn with the passage of the recent financial reform legislation, which goes farther than either SOX or the SEC have moved to date.

Here’s a recap:


  • Act 1: Following the collapse of Enron and other corporate scandals, Congress passes SOX, which gives the SEC the authority to clawback compensation from CEOs and CFOs when a company restates financial statements due to misstatements.
  • Act 2: Seven years later, the SEC finally employs its authority by suing the former CEO of CSK Auto Corp. for $4 million in bonuses, etc.; that ex-CEO, Maynard Jenkins, is fighting the suit.
  • Act 3: The SEC staff works on a formal policy regarding clawbacks, which reportedly would tie the amount of the clawback to the period of wrongdoing, according to the WSJ.


The plot thickened when SEC commissioner Luis Aguilar, a Democrat who believes in tougher SEC enforcement, threatened to recuse himself in cases in which he doesn’t think that the SEC’s staff recommendation is strong enough, which could potentially leave the commission deadlocked with two Republican and two Democratic commissioners in a tie.

In a WSJ interview on August 7, Aguilar said, “The SEC ought to use all the tools at its disposal to try to seek funds for deterrence.”

Interestingly enough, Aguilar’s position is actually in line with provisions in the Restoring American Financial Stability Act of 2010, which requires the SEC to mandate that publicly traded companies adopt clawback policies. Under the law, businesses would need to get back as many as three years worth of bonuses, stock options, and other compensation when earnings must be restated after the books were cooked, even if the company’s CEO and CFO weren’t specifically to blame.

So the SEC must navigate through its own internal issues when setting policies for itself and publicly traded companies, and it’s likely to be a long and drawn out process. Corporations, lobbyists, and consumer advocates will also weigh in on rules for publicly traded companies once they are issued, but the issuing process could take months.

If, and it’s a big if, the SEC comes out with robust internal and external rules, this could signify that the agency is willing to take on CEOs and CFOs where it hurts following a restatement, whether that CEO or CFO is personally responsible. And technically, really, even if these execs weren’t directly involved in whatever misconduct is going on, they’re in charge and they should be held accountable.

So I say, bring on the tough rules. We’ll just have to wait and see how this long drama unfolds.



–Amy E. Buttell is a journalist working in Erie, Pennsylvania and is a graduate of Mercyhurst College with a certificate in accounting.

As an impartial, nonprofit forum for the finance and banking industries NYSSA encourages discussion and debate among its member and other professionals. Commentaries, however, should be taken as the sole opinion of the author(s) and not of NYSSA. If you would like to submit a commentary to the Finance Professional's Post, send your article to the editor.

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