'Clawback' targets executive pay bonuses | POLL

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  By Susan Orr
  
  
  


• Posted March 7, 2010 at 11:08 p.m. , updated March 8, 2010 at 9:22 a.m.


• http://www.courierpress.com/news/2010/mar/07/clawback-targets-bonuses/

EVANSVILLE —
If an executive is found to have misstated his company's financial performance, should he be able to keep his bonus?

For a growing number of companies in the Tri-State and nationwide, the answer is "no."

"We don't think officers should keep bonuses if they were mistakenly
paid because of earnings that weren't right," said Jeffry Knight,
executive vice president and chief legal counsel for

Old National Bank.

To address the issue, last month Old National's board of directors
established a bonus recoupment policy, also known as a clawback policy.

Details can vary, but in general, clawback policies give companies
the ability to take back executive compensation that was awarded based
on incorrect financial reports.

Old National's policy covers both intentional misstatements and
errors made by the company's executive officers. It also provides for
penalties that can include reducing the executive's compensation for
the affected time period, seeking repayment of cash bonuses, changing
or canceling equity compensation or termination.

Clawbacks are becoming more common, especially among larger companies.

Brian McGuire, associate dean and professor of accounting at the
University of Southern Indiana's school of business, said about 40
percent of S&P 500 companies have clawback provisions, as do about
30 percent of Russell 1000 companies.

A few factors are driving the trend, McGuire said.

The Sarbanes-Oxley Act, which took effect in 2002, requires that
corporations' chief executives and chief financial officers be covered
by clawback provisions.

"Basically, that affected only a very upper tier of executives," McGuire said.

Now President Barack Obama's administration is looking into whether
clawback requirements should be expanded to cover a larger group.
Knowing this, some companies are moving in that direction.

Business research company Equilar also has found evidence of a
rising clawback trend. In November, Equilar published an analysis that
found 72.9 percent of Fortune 100 companies had a publicly disclosed
clawback policy. Only 17.6 percent did in 2006.

A number of Tri-State companies, both large and small, are joining this trend.

At

Vectren Corp., spokeswoman Chase Kelley said only the CEO and chief financial officer are subject to their clawback provision.

But, she said, Vectren's management favors applying clawbacks to a
larger group of executives. The compensation and benefits committee of
Vectren's board of directors will discuss the matter at their next
meeting, scheduled for October.

Bank of Evansville's board of directors also is working on a clawback policy, said President and CEO Michael Sutton.

The board hasn't worked out details, Sutton said, but once approved
it will become part of the 2010 compensation plan for himself,
Executive Vice President and Chief Lending Officer John Lamb and
potentially other bank officers as well.

Sutton said having a clawback policy is "good corporate governance."

"It's one of the ways to keep good accountability when it comes to compensation," Sutton said.

While some companies implement clawbacks voluntarily, others do so out of necessity.

When Integra Bank Corp. accepted federal bailout money last year, it
came with specific rules about executive compensation. These rules,
which apply to Integra's 25 highest-paid executives, include a clawback
policy requirement.

Integra's Chairman and CEO Michael Alley said clawbacks are useful.

"I think it is good board governance and good compensation governance to have those provisions," Alley said.

But Alley said clawback provisions — along with the other TARP-related limitations — have a downside.

It's hard to prove, Alley said, but he thinks the rules have put Integra at a disadvantage in hiring and retaining executives.

Michael Carroll, Integra's executive vice president and chief financial officer, agreed.

"You're definitely at a disadvantage if you're a TARP bank trying to recruit that same employee," he said.

Once a company pays back its TARP money, Alley said, it's no longer
bound to abide by the restrictions. But Integra has set no timeline for
when it will repay the money, its executives say.

Clawbacks aren't necessarily a perfect fix, USI's McGuire said.

The policies can be tough to enforce, and an executive who