Executive Remuneration Clawback System In The US

The acceleration of economic globalization is making the world economy closer day byday. Any economic up and down in one country or region will seriously impact the overalleconomic situation of the world. Companies, particularly major and powerful transnationalcompanies, are bringing enormous impact to the economy and even the whole humanity. Onone hand, companies are changing the world in a positive way by the utilization of modernmanagement and the application and research of high technology. On the other hand, thenegative impact of companies can by no means to be neglected. In the aim of profitmaximization, companies often resort to high remunerations and multiple welfare policies tomotivate employees to the fullest. Hence, remuneration management has become animportant part of corporate management. After a series of corporate scandals in2002and thefinancial turmoil in2007, remuneration management in the companies of the United States isgetting continuously attention from regulators and the general public. To correct theimbalance between officers’ remuneration and the performance of company, the increment ofshareholders’ interests; and also to prevent financial crisis through improvement of corporateinternal management, the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform andConsumer Protection Act were passed in2002and2012respectively. Both of the acts areinvolved with the management of officer’s remuneration. It hopes to regulate officers’behaviors through the application of remuneration clawback policy. Legal regulations ofremuneration clawback are far from adequate in China: there are only some guiding principleswithout any legal mandatory forces. The study on remuneration clawback policy in China canbe of vital theoretical and practical meaning to the improvement of Chinese corporatemanagement.The dissertation is divided into five parts in addition to introduction and conclusion.The first part is a general introduction to remuneration clawback policy. A company isentitled to clawback the whole or part of the remuneration that has been paid under theconditions provided in the employment contract between officers and other employees and thecompany. Remuneration clawback is set to address the imbalance between executive behavior,corporate performance, and shareholder values in corporate governance.The second part tells the concrete legal regulations as well as application of remuneration clawback in the US, which includes Sarbanes-Oxley Act, the AmericanRecovery and Reinvestment Act and the Dodd-Frank Wall Street Reform and ConsumerProtection Act. From the changes in legal provisions, the federal government of the US istoughening regulation of companies, especially in the financial industry. In application, thespectrum of clawback is widening, thus encompassing more executive behaviors.The third part analyses the impact clawback made on US corporations. Studies havedemonstrated that the application of clawback provision in Sarbanes-Oxley Act was beneficialto the improvement of corporate financial report-making and information disclosure. Toreduce the likelihood of account restatement, corporate managers tend to stress on internalmanagement to reduce disclosure of corporate risks by exterior auditing. This leads todecrease of fees in exterior audit and corporate costs. In level and structure of remuneration,clawback provision may bring higher costs and risks to the company and the officers.Shareholders may also suffer as officers turn to conservative managing strategies to avoidexcessive risk and liability undertaking.The fourth part analyzes the necessity to introduce clawback system into China, thecurrent provisions and the difficulties to implement. The awareness to strengthenremuneration management grows along with the improvement in Chinese corporategovernance. However, in respect of clawback, the relevant provisions are confined only insome industries and companies, lacking enforceability and practicability. The application ofclawback would be beneficial to narrow the huge cap in remuneration between different linesof business, regions and inside the company under the current corporate managementenvironment. Some obstacles hamper the implementation of remuneration clawback in Chinaincluding the flawed remuneration-making mechanism, opaque disclosure mechanism and thedifficulty in determining the enforcement body.The fifth part proposes the recommendations to establish Chinese clawback system onthe basis of American legislation and practice: the path to introduce remuneration clawback;the clarification of relevant body; the triggering condition of clawback; the amountremuneration to refund and clawback period.