Clawback Provision
A contractual right to recover previously paid executive compensation after misconduct or restatements.
What is Clawback?
A clawback provision is a contractual clause that allows a company to recover previously paid executive compensation — including cash bonuses and equity awards — if certain triggering events occur. The most common triggers are an earnings restatement due to material non-compliance with financial reporting requirements or the discovery of executive misconduct. The Dodd-Frank Act of 2010 directed the SEC to mandate clawback policies for public companies; the SEC adopted final rules in October 2022 (effective for fiscal years beginning after October 2, 2023), requiring all listed companies to maintain and disclose clawback policies. Clawbacks are viewed as a key governance safeguard that aligns executive incentives with accurate financial reporting.
Example
Wells Fargo's board clawed back approximately $75 million in compensation from former CEO John Stumpf and other executives following the 2016 fake-accounts scandal, in which employees opened millions of unauthorized customer accounts to meet sales targets. The clawbacks represented one of the largest executive pay recoupments in US corporate history.