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clawback provision

The Dodd-Frank Act includes a clawback provision that allows companies to recover (i.e., "claw back") monies paid to current and former directors and officers under incentive compensation plans.

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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.

Related Terms

The Dodd-Frank Act, enacted in 2010, made dramatic, sweeping changes to the nation's financial...

Financial restatement is a material adjustment to a corporate financial statement that affects the...