Liu, who oversees $108 billion in New York City pension funds, says this would help prevent improper or risky practices.
Liu and the NYC Pension Funds called on three corporate boards to hold senior executives financially accountable for losses that result from excessive risk-taking or improper or unethical conduct. The Funds filed the shareholder proposals at JPMorgan, Goldman Sachs and Morgan Stanley because they are among the largest and have each come under scrutiny for improper practices leading up to the financial crisis. Each firm has paid more than $100 million over the past 18 months to settle state or federal charges in connection with mortgage securities.
“No one should profit or be rewarded with bonuses when engaged in improper or unethical behavior,” Liu said in the statement. “These tougher clawback provisions will not only recover money that shouldn’t have been paid in the first place, but also set the tone for a stronger standard of conduct for company executives as well as their bosses.”
The firms have clawback policies that allow them to recoup incentive pay from employees who act improperly. The proposals submitted by the Comptroller and the Pension Funds would strengthen these clawback policies in several ways. The proposals aim to prevent the perverse incentives and bad practices that were at the heart of the financial collapse of 2008.
The Comptroller and the Pension Funds have asked the firms to make three changes to their compensation clawback policies:
Increase executives’ accountability
Goldman Sachs’ and JPMorgan’s current clawback policies only hold executives responsible for “material” losses, creating unrealistically high legal and financial standards for clawback actions. The proposal asks the word “material” be stricken from the two firms’ clawback policies in order to lower this barrier that protects executives from being held accountable. Morgan Stanley's existing clawback policy does not include the “material” hurdle so this request is not part of the proposal filed at that firm.
Hold supervisors responsible for bad behavior
Current policies at the three firms limit clawbacks to employees who take excessive risks or engage in improper or unethical conduct. Under the current system, a senior executive can benefit when a subordinate engages in improper conduct that generates profits in the short-term, but that ultimately causes financial or reputational harm to the firm. The proposal seeks to eliminate this perverse incentive.
Disclose clawback actions
The proposal asks that the three firms’ clawback policies be amended to require disclosure of any decision by their boards on whether or not to recoup executive compensation. Currently, they do not have to make clawbacks decisions public.