The use of tax incentives for attracting jobs and capital investment has grown over the past decades to include performance measures from which to gauge a company's growth.
The employees' bonuses are, in a clawback scheme, tied specifically to the performance (or lack thereof) of the financial product(s) the individual(s) may have created and/or sold as part of his or her job expecting a high profit.
[8] The growing popularity of clawback provisions is likely, at least in part, due to the Sarbanes–Oxley Act of 2002, which requires the U.S. Securities and Exchange Commission (SEC) to pursue the repayment of incentive compensation from senior executives who are involved in a fraud.
2013), applying New York's faithless servant doctrine, the court held that a hedge fund's portfolio manager engaging in insider trading in violation of his company's code of conduct, which also required him to report his misconduct, must repay his employer the full $31 million his employer paid him as compensation during his period of faithlessness.
"[12] The judge also wrote: "In addition to exposing Morgan Stanley to government investigations and direct financial losses, Skowron's behavior damaged the firm's reputation, a valuable corporate asset.
Academic research finds that voluntarily adopted clawback provisions appear to be effective at reducing both intentional and unintentional accounting errors.
According to a December 2010 New Yorker magazine article,[6] the clawback phenomenon pursued by banks and other financial groups directly and/or indirectly responsible for the financial crisis has been used by the chief administrators of those institutions in order to make the case that they are taking tangible self-corrective action to both prevent another crisis (by supposedly dis-incentivizing the sorts of shady investment-product behavior displayed by their people in the past) and to appropriately punish any potential future activity of a similar sort.
[15] Clawback lawsuits in US courts, especially from innocent individuals and entities who profited from financial crimes of others, have increased in the years since 2000.
[18] Of the recovered money, $7.2 billion came from the estate of just one investor, Jeffry Picower; it was the largest civil forfeiture payment in U.S.