Companies should be aware that at least some major accounting firms are questioning whether discretionary aspects of clawback policies trigger variable accounting for compensatory equity awards granted by those companies. Existing accounting guidance (ASC 718-10-30-24) would seem to suggest that clawback features should not disrupt fixed accounting treatment because of their contingent nature.

Now, however, PricewaterhouseCoopers and KPGM, at least, are publicly expressing concerns about clawback policies focusing on their discretionary, rather than contingent, nature. A 2013 PricewaterhouseCoopers survey of 100 companies indicated that nearly 80% of those companies had clawback policies that had problematic discretionary provisions. A clawback policy could involve discretion as to what circumstances it may apply; whether it should be applied; and, if applied, how severely it should be applied. It seems that all aspects of discretion may be problematic. Companies adopting or modifying existing clawback policies should evaluate the potential risks of discretionary provisions and consider consulting with their independent accountants before adopting or revising those policies. This will be particularly true for public companies when it comes time to evaluate compliance with the much-anticipated SEC guidance on clawbacks that will finally implement the Dodd-Frank legislation of 2010.