Executive pay clawbacks: Just a shareholder pacifier?

August 16, 2012: 9:28 AM ET

Like the prospect of criminal prosecution, clawbacks can seem less like a real threat and more like a sop to public clamor for tangible punishment.

By Elizabeth G. Olson

FORTUNE -- As much as the disgruntled investing public would like to see dodgy executives thrown in jail, they may have to settle for the slower, but still painful, method of letting corporate boards wrest cash and stock from the wrongdoers.

Once an obscure concept, the right to reclaim compensation from executives who engage in ethical or financial misdeeds is becoming enshrined in corporate practices. A robust 86.5% of Fortune 100 companies have adopted "clawback" provisions that allow them to recover cash bonuses or stock from errant executives, according to data gleaned from recent federal securities filings.

Such provisions "now have become a widely accepted corporate governance practice," says Aaron Boyd, research director at Equilar, an executive compensation tracking firm. Its new "Clawback Policy Report" found that about one-third of the Fortune 100 adopted, or modified, their clawback policies in the wake of the 2008 financial crisis.

The clawback was the first thing invoked by J.P. Morgan Chase (JPM) to fend off criticism of its $3 billion, or so, in trading losses. The bank said it would restate its earnings for the first three months of this year. Restatements are a customary trigger for retrieving top-tier executive pay.

MORE: The trials of GM's Dan Akerson


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