By: Mark A. Borges

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As we approach the third anniversary of the date when incentive compensation “received” is subject to clawback, we have taken a closer look at the disclosures companies have made since implementation.

This Thoughtful Pay Alert summarizes our findings from reviewing publicly available disclosures of “recovery analyses” conducted between January 1, 2024 and June 30, 2026.

For a detailed discussion and analysis of the clawback requirements, please see our Thoughtful Pay Alert, SEC Adopts Compensation Recovery (“Clawback”) Policy and Disclosure Rules (Nov. 8, 2022).

 

Companies Reviewed

We reviewed annual reports on Form 10-K filed between January 1, 2024 and June 30, 2026 to identify all companies that checked the two boxes on the cover page requiring listed companies to indicate that (i) the financial statements included in the report reflect the correction of an error to previously issued financial statements and (ii) one or more of these error corrections involved a restatement requiring a recovery analysis of any incentive-based compensation received by any of the company’s executive officers during the relevant recovery period.

Based on this methodology, we identified 118 companies that reported recovery analysis results in their annual report and/or proxy statement, consisting of 78 companies (66%) filing as either “accelerated filers” or “large accelerated filers” and 40 companies (34%) taking advantage of the SEC’s scaled disclosure requirements for “smaller reporting companies.”

Observations: During the initial months of compliance, many companies experienced challenges with respect to the Form 10-K checkboxes which were largely remediated through SEC Staff guidance at the end of 2023. Nonetheless, inconsistencies in the use of the checkboxes continued to a degree as some companies struggled to comply with this requirement in situations involving atypical fact patterns. Even today, we encounter companies that do not appear to be checking the boxes correctly (even in situations when they either concurrently, or subsequently, provide the required disclosure).

While we were interested in the number of required clawbacks resulting from a “little r” restatement, ¹Commonly, a restatement where an error is immaterial to the prior period financial statements, but that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period is known as a “little r” restatement. The SEC proposed (and ultimately elected) to expand the scope of the type of financial restatements triggering a potential clawback to include “little r” restatements in 2021 when it reopened the comment period on its original proposal to implement Section 954 of the Dodd-Frank Act. the process of segmenting those companies is complicated by the discretion permitted in describing the nature of the accounting restatement triggering a recovery analysis. Our review identified only six companies (33%) disclosing the recovery of erroneously-awarded incentive compensation based on a “little r” restatement, although the actual number may be higher.

 

 Clawback Required

Observations:

Recovery Remedies:

• Of the 19 companies disclosing the clawback of erroneously-awarded incentive compensation following a recovery analysis:
  • 11 (58%) involved recovery of cash bonuses only
  • 4 (21%) involved recovery of equity awards only
  • 4 (21%) involved recovery of both cash bonuses and equity awards
• Where a portion of a cash bonus was erroneously paid, recovery typically took the form of a cash repayment (10 instances) or a reduction in the amount earned and payable for the following year’s bonus (three instances).
  • One company disclosed that its Compensation Committee had previously exercised “negative” discretion to reduce bonus payments to a level below the amount otherwise payable following its restatement, so no affirmative clawback was required.
  • One company failed to disclose how repayment was to be made or whether such repayment had occurred.
• In cases where the erroneously-awarded compensation involved equity awards, the clawbacks took various forms:
  • Some companies either reduced or offset the number of shares eligible to be earned and vest under outstanding awards against the number of recoverable shares (four instances).
  • One company disclosed recovering shares previously issued, while a second company reversed certification of the achievement of a stock price target leaving the erroneously-awarded shares to possibly be earned based on future performance.
  • One company noted that recovery was still underway; another company indicated that recovery was completed but did not disclose the method of recovery.
• The various approaches taken to recover erroneously-awarded compensation offer insights into the range of remedies companies may employ – and a glimpse of the attendant challenges – depending on the circumstances. Frequently, recovery methods differed based on whether an individual was an active or former executive. In situations involving a former executive, recovery typically took the form of a personal check, irrespective of whether it involved a cash bonus or equity award or active or former executives. Although no company disclosed recoverable amounts outstanding for more than 180 days, recovery may not necessarily be forthcoming. One company sent written requests for repayment to five former executives (in the aggregate amount of $55,000) but disclosed that it was unable to contact any of them and obtain reimbursement.

 

Recoveries Based on Stock Price or TSR Metrics

Observations: The typical disclosure of a recovery analysis involving a stock price or TSR metric can be (and has generally been) extensive, with most companies providing a detailed table explaining the award outcome based on the original accounting statement, the results under the restated financials, and the incremental difference (if any) subject to recovery based on the applicable metric. The disclosures contained in the proxy statements of Cardinal Health, Cleveland-Cliffs, and Macy’s offer interesting examples of how companies have drafted their disclosure to explain how the estimates used to determine the amount of erroneously-awarded compensation were calculated.

 

Clawback Not Required

 

Observations: Given the range of errors that can trigger an accounting restatement and the expansive scope of the applicable SEC rules and listing standards, it’s unsurprising that the majority of recovery analyses do not result in an actual clawback. While required to provide a “brief explanation” of why they reached this conclusion, most companies appear to be doing so with a single sentence or two. Now that a clearer picture is beginning to form as to how the required recovery analyses are likely to unfold, we anticipate this level of disclosure may become the customary practice.

 

Conclusion

We anticipate that as more recovery analyses disclosures become available, trends will begin to emerge, both in terms of (i) how successful clawback recoveries are accomplished and (ii) the format and substance of the required disclosure.

To date, most situations resulting in a clawback have been relatively straightforward. Moreover, even once the full three-year recovery “lookback” requirement is in effect, the relevant recovery period will continue to be measured from the date a company is required to prepare an accounting restatement, limiting the analysis to the most recent financial reporting periods. In the interim, as has been the case with previous executive compensation disclosure requirements, we expect clawback disclosure practices to continue to evolve.

 

ABOUT COMPENSIA

Compensia is the leading independent compensation advisor to technology and life sciences companies. We have extensive experience helping companies design executive compensation programs and develop clear, effective proxy disclosures aligned with SEC requirements, proxy advisor policies, and investor expectations. For more than two decades, Compensation Committees and C-Suites have looked to us to develop customized solutions that balance the interests of a company, its shareholders, and its executives.

 

If you would like assistance or have questions about the topics covered in this Thoughtful Pay Alert, please contact your Compensia team or the author of this alert.

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