Word: clawbacks
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...Some of the definitions provided throughout the report, in sidebars and in a glossary to make is easier for laypeople to read: "Clawback: Recovery by the company of bonuses or incentive compensation paid to a senior executive ... Golden Parachute: Compensation to (or for the benefit of) a Senior Executive Officer made upon severance from employment that exceeds specified thresholds. Under EESA [The Emergency Economic Stabilization Act], such compensation is limited to three times the executive's annual base salary ... Haircut: Difference in the value of the collateral and the value of the loan (the loan value is less than...
...addition to the cash limit, the "maximum wage" plan allows companies to reward "senior management" - a complement of no fixed definition - with restricted stock, but it can only be cashed in after the government is paid back. There are also prohibitions against golden parachutes as well as a clawback provision - the company may reclaim that stock if its results subsequently tank - that can extend to as many as 25 top executives...
Still, Lehman and other firms were once structured in a way that made employees think long and hard about risk. They were partnerships, and partners couldn't cash in until they'd been on the job for decades. This amounted to an implicit clawback system, with the other partners doing the clawing. The partnership model began to break down in 1970, when upstart Donaldson, Lufkin & Jenrette sold shares to the public. Merrill Lynch followed a year later, and in 1999 Goldman Sachs was the last big firm to go public. Perhaps that was all a mistake. "It's a radically...
Clawing back gains absent fraud--and where there are no preset clawback agreements--is another matter. The concept is foreign to most of Wall Street. Hedge funds generally have only what you might call "claw forwards": high-water-mark provisions that prevent managers from pocketing performance fees after a loss until they've made up that loss to their investors. Investment banks, meanwhile, have for decades paid out bonuses on the basis of one year's profits and worried about the consequences later...
...that clock be turned back? It depends partly on Congress but mainly on financial markets. If they come roaring back over the next few years, the whole clawback conversation will probably be forgotten. If they don't, investment banks and hedge funds will have to reinvent themselves to win back investors. Partnerships will make a comeback. Hedge funds will stop charging investors 20% fees. And clawbacks will be everywhere...