The Council of Institutional Investors on Friday approved a new policy specifying that current and former executive officers should be subject to corporate clawback provisions on bonuses, incentive pay and compensation in cases of corporate fraud or misstatement of financial results.
CII's previous policy only mentioned executive officers and gave no further guidance.
Also under the new policy, incentive-based compensation should be subject to a recovery period of at least three years.
In a policy statement, CII said the revised language makes it clear than an executive should not be able to terminate eligibility for clawbacks simply by leaving the company. The statement says that the amended language will help ensure that the council is prepared to comment on the SEC's proposed rule on clawbacks.
The SEC is required under the Dodd–Frank Wall Street Reform and Consumer Protection Act to implement a clawback policy, but it is unclear when the commission will issue its draft rule.
CII also amended its policy that opposes corporations subjecting shareholder lawsuits to mandatory court arbitration to include all corporations globally. The previous policy only mentioned U.S. companies.
CII said it doesn't object to voluntary arbitration for example, between a company and an investor. It said the intent of its expanded policy is to discourage the type of provision put forth by the Carlyle Group before it went public earlier this year to prohibit unit holders from having access to the court in case of a dispute. Carlyle officials later withdrew the policy that would have subject unit holders to mandatory arbitration.
The changes were recommended by CII's board and approved by members in closed session Friday morning.
CII has no enforcement powers, but its member pension funds as shareholders vote on corporate board members and individual officers.