Tuesday, June 06, 2006

Recouping executive bonuses

GM shareholders were not the first ones to think about recouping executive performance bonuses based on falsely inflated financials (see previous post). When financials are restated, bonuses based on the wrong figures should be revised downwards and the company should recoup the excess amounts paid.

* Shareholders at another company, Kodak, tried (and failed) to make this change at their meeting last month. The Amalgamated Bank LongView Collective Investment Fund, a shareholder, wanted Kodak's board to commit to reviewing and recouping executive bonuses and other rewards in the event of an earnings restatement. However this resolution failed to pass.

* Shareholders at HP, also in May 2006, submitted (but failed to pass) a resolution seeking to allow the company to recoup bonuses after earnings restatements.

* When the Office of Federal Housing Enterprise Oversight released a report of their investigation into Fannie Mae's (suspiciously) growing earnings from 1998 until 2004, it prompted some talk about trying to recoup some of the performance-based bonuses from executives, such as former Chairman Franklin Raines. Of $90 million Raines received from the company between 1998 and 2003, $52 million was tied to earnings targets that the company hit, at least in part, by "deliberately and intentionally" manipulating its accounting, investigators concluded (story here).
But no steps have been taken as yet.


And since this blog is all about connecting academic research with real-world issues, I looked to see if there is any academic work about recovering executive pay or bonuses after restatements.
Zip. Zilch. Nothing.
Ideas, anyone?

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