Carly Fiorina ("Corporate Leadership and the Crisis") recommended clawback provisions for CEOs, which are the right solution to the debate over executive compensation. Successful CEOs should be richly rewarded for great work, but if they've built a house of cards that collapses, they need to give it back. Well-designed clawbacks would not only satisfy the public's need for fairness, they would focus CEOs – and other corporate officers, and boards of directors – on long term performance rather than annual goals tied to compensation.
The devil is always in the details, so I'd like to encourage those focused on corporate governance to develop a "standard American clawback." My two cents: all compensation above what is earned by the President of the United States is subject to a two-year clawback – for example, bankruptcy in September 2008 would mean executives return all "excess compensation" from September 2006 on. Triggering events would include precipitous stock drops, significant layoffs, executive indictments, bankruptcy, and government bailouts. Mitigating circumstances might include popped stock bubbles, CEOs hired for turnarounds, whistleblowers and force majeure events. All corporate officers and board members would be subject to the clawbacks, including those who have left the company. Clawback proceeds would go to the company in the case of bankruptcy, bailouts or indictments. Terminated employees would share clawback proceeds after major layoffs, and shareholders would receive a special dividend in the case of stock swoons. In no instance would the government share in the proceeds.
If this "standard American clawback" had been in place during 2008, hundreds of corporate executives and board members would be disgorging hundreds of millions of dollars, at times going into personal bankruptcy as a result. And that's exactly the point – we want our corporate leaders keenly focused to make sure this mess never happens again.
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