In the Dodd-Frank bill, there’s an ugly rule that every financial exec should hate: the Clawback.
The FDIC adopted the new rule this week. Its interpretation, which applies to every public company, says that public companies can “claw back” an executive’s compensation if it’s shown that the company has failed and the executive is largely responsible for its failure. And over the next few months, the SEC has to propagate their interpretation of the rule. Then it will write its own version.
The likely outcome of both: if you’re an executive at a public company and/or a bank, your bonuses are at risk if your company fails.
In the past, it’s been pretty unusual to be required to re-pay an earned bonus (signing bonuses are frequently re-paid once the employee leaves), but it happened to these unfortunate 9 men for various reasons.
Commerzbank took Gareth Price-Jones to the Court of Appeal and demanded that he repay $250,000 in bonus pay that they gave him accidentally.
Here's what happened. When Commerzbank signed Gareth-Price, they guaranteed him a bonus of £250,000 a year. They paid him the agreed upon £250,000 in December 2000. But then they paid him again, in March 2001, in the amount of £265,000.
Gareth Price thought the pay was an added bonus, and fought the court to keep it, but he was ordered to return £250,000 to the bank.
Douglas Poling, a VP at AIG, repaid his $6.4 million bonus to AIG after the public outraged that the trading unit (energy and infrastructure investments) that 'brought the insurer to its knees,' handed out $165 million in bonuses.
Source: Wall Street Journal
The High Court ordered Bridgecorp director Rob Roest to repay $313,906 in excessive salary and a bonus he received in the months leading up to the failure of the finance company.
But then Roest declared bankruptcy. He'll have to take the issue to court if he doesn't want to pay.
Source: New Zealand Herald
New management at IKB had the firm's balance sheet recalculated for 2006-2007. Suddenly the bottom line was much worse than before. So they demanded repayment of bonuses that had already been paid out.
Markus paid back $650,000.
Source: Spiegel Online
Diebold CEO Walden O'Dell agreed to repay more than $470,000 in cash bonuses, 30,000 shares of stock, and options for 85,000 shares.
The SEC had accused three former Diebold executives (not O'Dell) of using accounting fraud to inflate earnings. The company agreed to pay $25 million to settle the SEC's allegations, and O'Dell agreed to pay back the bonus he had earned that year.
Source: Compliance Week
Bank of America CEO Ken Lewis was forced to pay back $1 million from a $1.5 million bonus by pay czar Ken Feinberg after the troubled bank was forced to take TARP funds during the financial crisis.
Source: The Guardian
Volker, like Marcus, also paid back his bonus to IKB after new management demanded employees return what they made at IKB during 2006-2007.
New management had the firm's balance sheet recalculated for 2006-2007. Suddenly the bottom line was much worse than before. So they demanded repayment of bonuses that had already been paid out.
Volker, the former CFO, paid back $650,000 to IKB.
Source: Spiegel Online