Executive contracts with clawback provisions - a trend with downsides

Researchers at the University of Göttingen see risk to corporate development. The financial crisis has caused discussions on the appropriateness of executive compensation. As a result, there have been initiatives in many countries to insert -clawback provisions- into executive contracts. The intention is to prevent behaviour by board members that is oriented towards short-term goals by allowing companies to recoup compensation already paid out to executives under certain conditions. However, researchers at the University of Göttingen have discovered that these provisions can also lead to undesired consequences for corporate development. Michael Wolff, Professor of Management and Control at the University of Göttingen, and his team have investigated the consequences of clawback provisions for corporate development. The scientists evaluated data from almost 1,000 listed US companies over a period of more than ten years.