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clawback provision

A provision within the Dodd-Frank Act allowing companies to recover (i.e., "claw back") monies paid to current and former directors and officers under incentive compensation plans. Such repayments are required under the law if a subsequent financial restatement eliminates the basis for these incentive payments. For example, assume a company must issue a financial restatement that states lower earnings than were initially reported. If, under the company's incentive compensation plan, bonuses were paid as a result of these (originally) higher earnings, under Dodd-Frank's clawback provision, executives are required to return such payments to the company. See also Dodd-Frank Act; Financial restatement.

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