Clawback Policies May Be Necessary

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    Canadian companies may need to develop clawback policies for senior executives, says Ryan Resch, leader of the executive compensation practice at Towers Watson. Speaking at the ‘Strategies for Executive Compensation’ session it co-hosted with Blakes, he said the proposed regulations from the SEC include foreign private issuers who will be required to develop and implement policies to recover incentive based compensation paid to executives or former executives during the three years preceding the discovery of an accounting restatement if the restatement is due to material non-compliance with any financial reporting under securities law. So while a majority of companies have some form of clawback policy, the form may be changing from defining required culpability on behalf of the executive as fraud or misconduct. The inclusion of compensation elements and time period are less than consistent as companies have not thought through how to clawback funds especially with longer term plans. The proposed SEC regulations permit discretion to not clawback if the costs to do so exceed the recovery costs. However, companies cannot indemnify executives for losses directly or through insurance.