Clawback provisions: Research shows the claws are not always sharp

In a USA Today article, Associate Professor of Finance Ilona Babenko reported on her research of 272 companies with clawback provisions.

We found out what can happen if you break a promise in business. Wells Fargo & Co.'s Chairman and CEO John Stumpf forfeited more than $40 million in pay as he abruptly retired amid the financial institution's fake accounts scandal. Research by Associate Professor of Finance Ilona Babenko shows clawback provisions are only as strict as companies that enforce them. From USA Today, September 30, 2016:

As of 2013, about 60 percent of the companies in the Standard & Poor's Composite 1500 Index — and 80 percent of S&P 500 — had clawback provisions, says Ilona Babenko, professor of finance at Arizona State University. “Banking and financial services companies are more likely to have it,” she says. But with board directors generally reluctant to punish their own executives, few companies have exercised their provisions, Babenko says. In her research, she concluded that, in monitoring the period between 2001 to 2013, 272 companies with clawback provisions had restated their earnings. She found clawbacks were triggered in “less than 10 cases,” she says.

About Ilona Babenko