More US firms ban execs from ill-gotten pay

NEW YORK (Reuters) - Nearly two-thirds of big U.S. companies have banned their leaders from keeping hefty bonuses when there are questions over executive conduct or the accuracy of financial results, a policy the government is also demanding from firms selling shares to the Treasury Department as part of the bailout plan.

A new study to be released on Thursday finds that these big corporations have voluntarily adopted so-called "clawback" policies that allow them to recoup portions of executive pay in the event of financial restatements, unethical conduct or other reasons. An early copy was provided to Reuters.

Many investors say such rules should be standard practice at companies, saying it's outrageous for executives to be able to keep ill-gotten pay. The Treasury Department, in compensation rules laid down as part of the financial rescue, has also latched onto the hot topic and demanded that companies selling equity stakes to the government agree to adopt clawback policies.

Overall, 64.2 percent of the largest 95 publicly held companies in the Fortune 100 had disclosed clawback policies as of this year, up from 42.1 percent in 2007 and 17.6 percent in 2006, according to the study from pay research firm Equilar Inc.

"We're switching from a situation from where it was a toss-up as to whether a company would have a clawback policy to now, there is a clear consensus that clawbacks are a good corporate governance policy," said Alexander Cwirko-Godycki, a research manager at Equilar and one of the study's authors.

Lockheed Martin Corp, Motorola Inc and Hess Corp are among the companies that have disclosed clawback policies this year, according to Redwood Shores, California-based Equilar.

The provisions vary from company to company. The study found that overall, clawback policies are becoming broader, applying to more types of conduct and covering more kinds of compensation that executives receive.

The policies generally do not require CEOs and others to forfeit all their compensation. Instead, they target things like cash bonuses as well as stock options, restricted shares and shares granted for meeting various performance goals, Equilar said.

A handful of companies, including PepsiCo Inc. also have extended clawback provisions to apply to outside directors on the board, not just company executives, the study found.

The clawback concept is not new. The 2002 Sarbanes-Oxley corporate reform law included a provision requiring the CEO or chief financial officer of a public company to repay compensation if there were to be an accounting restatement as a result of misconduct.

That has led to pressure for companies to enact their own policies. The primary driver for boards of directors, according to Equilar, is to deter corporate managers from taking actions that could potentially harm the company's financial position.

The recent Treasury Department requirements also go further than Sarbanes-Oxley, expanding the provisions to the top five officers at a company, for example. The Treasury rules only cover financial institutions selling equity stakes to the government.

Michael Melbinger, a partner at law firm Winston & Strawn LLP in Chicago who advises boards of directors on compensation matters, said the clawback concept is gaining more acceptance among boards, as well as among corporate executives.

"They feel like they want to be part of good governance and they don't think they are going to do anything that leads to a clawback, so they are amenable to it," he said.