Takis Makridis
President & CEO
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Under the new Dodd-Frank clawback rule, public companies are required to recoup incentive-based compensation erroneously awarded due to a material misstatement in the financial statements. With financial metrics, this amount clearly follows from the restated financials. However, with stock price or total shareholder return (TSR) metrics, the amount to recoup isn’t obvious and depends on what the stock price would have been had the financials been stated correctly in the first place.
Using multiple approaches, we help companies determine erroneously awarded compensation related to TSR and stock price metrics (“market metrics”) by building a model that estimates what the stock price would have been had the financials never been misstated (the adjusted or “but-for” stock price).
We can also carry out additional analysis to allocate the stock price movement between the financial impact and factors like contemporaneous news, market forces, and even the fact that there was a restatement. These factors are not part of the clawback calculus.
The result is being able to state with confidence a reasonable level of erroneously awarded compensation or, alternatively, why no clawback is required.
We can be hired by legal counsel, under privilege, or by the company directly. After working with external counsel and designated members of management, our comprehensive analysis ultimately leads to a report presented to the Board of Directors that explains, in plain language, the methodologies and conclusions considered and recommended. We also prepare a report that can be filed with the listing exchange as Item 402(w) requires.
How We Help
- For each award, determine the applicability of the clawback rule and threshold points at which there could be erroneously awarded compensation based on the potential levels of stock price inflation.
- Perform a comprehensive analysis using multiple frameworks to assess erroneously awarded compensation (if any) in the context of market metrics.
- Implement models involving an event study framework and analyses of company fundamentals in order to provide a comprehensive understanding of the stock price inflation.
- Apply the stock price adjustment methodology to all affected incentive-based compensation awards containing a market metric and provide an award-by-award analysis of excess payment (if any).
- Where appropriate, perform deeper analyses to isolate the impact of the restatement.
- Develop a report and facilitate dialogue with the company’s Board of Directors, external legal counsel, and other stakeholders. Prepare content in plain language that brings clarity to an inherently technical matter.
- Upon project completion, develop a report that can be filed with the listing agency.
- Support management with the corporate accounting and disclosure related to the clawback.
