709. Jesse Fried & Nitzan Shilon, Excess-Pay Clawbacks, 11/2011; subsquently published in Journal of Corporation Law, Vol. 36, 2011, 722-751.
Abstract: We explain why firms should have a clawback policy requiring directors to recover “excess pay”—extra payouts to executives resulting from errors in performance measures (such as reported earnings). We then analyze the compensation arrangements of S&P 500 firms and find that very few have voluntarily adopted such a policy. Our findings suggest that the Dodd–Frank Act, which requires firms to adopt a policy for clawing back certain types of excess pay, will improve compensation arrangements at most firms. We also suggest how firms should address the types of excess pay not reached by Dodd–Frank.