As reported here, insurance behemoth AIG recently adopted a compensation clawback policy. This occurs several months after AIG exited the TARP program and ceased to be subject to the mandatory TARP clawback requirements. The actual policy is here. The events that trigger a clawback include:
- A material restatement of all or a portion of AIG’s financial statements
- Incentive compensation was awarded to, or received by, a covered employee based on materially inaccurate financial statements or on performance metrics that are materially inaccurately determined (regardless of whether the employee was responsible for the inaccuracy)
- A failure by a covered employee to properly identify, assess or sufficiently raise concerns about risk, including in a supervisory role, that results in a material adverse impact on AIG, any of AIG’s business units or the broader financial system
- An action or omission by a covered employee constitutes a material violation of AIG’s risk policies as in effect from time to time
- An action or omission by a covered employee results in material financial or reputational harm to AIG.
The AIG policy comes in advance of the SEC rulemaking on mandatory clawback policies under Section 954 of the Dodd Frank Act, which has been expected for some time, but which the SEC appears to be no closer to proposing now than it was at this point last year. Given continued institutional shreholder pressure on this topic, the question that many companies are asking themselves is, should they continue to wait for the SEC rules, or go ahead and adopt a clawback policy now, even if they need to change it later when the SEC rules finally do come out? The answer will depend on the individual company, and while AIG presents some unique circumstances, examples like AIG show the trend may be shifting in favor of adopting a policy before the SEC rule comes out.