"Clawback" Divertingly Simple, Not a Useful Description.

    "Clawback" provisions are being inserted into many more compensation contracts for Wall Street personnel than ever before.  The trouble is, the word is used to describe too many different things to be of any practical or legal use.

    Reportedly, Citigroup Inc. "will institute a 'clawback' policy to recoup executive compensation based on financial reporting that is later show to be inaccurate," according to a "memo to employees" from CEO Vikram Pandit on New Year's Eve.  Serena Saitto, "Citigroup CEO Pandit, Chairman Bischoff Forgo Bonuses (Update 2)" (Bloomberg.com, Wed., December 31, 2008).  This by itself conveys no meaning, unfortunately.  But it probably sounds good.

    Previously, there were not less than four (4) kinds of so-called "clawback provisions" listed by the Corporate Library and summarized in "Clawback Provisions Soar" (Treasury & Risk July-August 2008 at www.treasuryandrisk.com).  Their summary includes these four identifiable types in use at that time:

• "Fraud-based provisions" under which executives engaging in "misconduct that has caused a restatement" must refund whatever amount or type of compensation they have agreed to refund.  At the time of the Corporate Library Survey, General Electric and Citgroup itself were listed as "using" this provision;
• "Performance-based" provisions which "pertain to any executive who received an incentive payment based on incorrect financials," with Monsanto and International Paper listed as examples in the Corporate Library Survey;
• "Non-compete provisions" which have been around a very long time.  If the non-compete provision is violated by the particular person it binds, then the original 'employer' may recoup specified monies, or perhaps compensation received by the person previously paid by the 'employer'; and
• A "catch-all category" which is much like the other types of provisions in that each has little to do with the others except for the feature of recoupment by the employing corporation of monies it previously paid to the contract breacher.

No breach of any provision in any of these nondescriptive categories, each of which bears the same label, should ever be confused with a Common Law Breach of Fiduciary Duties, with at least one possible qualification.  To the extent that one or more of these contractual provisions provides the basis for a Fiduciary Relationship, the Courts may declare that the breaching party may have breached Fiduciary Duties which live separate from or together with the Contract.

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