Compensation Clawback Provisions Figure Prominently in Record GlaxoSmithKline Settlement

Another day another compensation clawback story! Last Monday (July 2, 2012), the U.S. Department of Justice announced the largest health care fraud settlement in U.S. history, an agreement with GlaxoSmithKline to plead guilty and pay $3 billion to resolve fraud allegations and failure to report safety data. As part of the settlement, GSK executed a five-year, 123 page Corporate Integrity Agreement (CIA) with the Department of Health and Human Services, Office of Inspector General (HHS-OIG). One of the most significant features of the CIA is the Executive Financial Recoupment Program. Under the Executive Financial Recoupment Program, GSK will establish and maintain a financial recoupment program that puts at risk of forfeiture and recoupment an amount equivalent to up to three years of annual performance pay (i.e., annual bonus, plus long term incentives) for an executive who is discovered to have been involved in any significant misconduct. This financial recoupment program will apply to all members of GSK's corporate executive team and to any vice presidents and senior vice presidents who are based in the U.S. who are either current GSK employees or who are former GSK employees at the time of a Recoupment Determination.

Mandatory Deferral: The settlement and the CIA require GSK to establish a deferred compensation plan that requires the deferral of 10% of a covered executive's annual bonus (25% in the case of corporate executive team members) for a three-year period that survives separation of the covered executive's employment. Bonuses deferred under the plan shall be matched on a dollar-for-dollar basis by GSK. All deferred bonuses, matching contributions and any related gains thereon are subject to forfeiture and voidance.

Formal Recoupment Program: The settlement and the CIA require GSK to establish and engage in a standardized, formal process to determine whether a triggering event has occurred and, if so, the extent of bonus monies, LTI Plan grants and deferred compensation that will be subject to repayment or forfeiture by the covered executive, and the most appropriate method for securing recoupment of relevant monies previously paid to a covered executive.

I was tempted to title this blog "Are Compensation Clawbacks Taking Over the World?" However, I thought better of it. Instead, I am using that title as part of my keynote address to the Annual All-Day Conference of the Silicon Valley Chapter of the NASPP on July 11, 2012, at the Hyatt Regency, Santa Clara, California.

On July 9, 1942, the First Special Service Force, also known as The Black Devils or the Devil's Brigade (because of their insignia), a legendary commando unit consisting of American and Canadian soldiers, was activated. Fort William Henry Harrison in Helena, Montana was chosen as the primary training location, due to its flat terrain for airborne training and its close proximity to mountains for ski and winter training. The brigade fought in the Aleutian Islands, Italy, and southern France before being disbanded in December 1944. Alberta Highway 4 and Interstate 15 in Montana, being the main highway between the cities of Lethbridge, Alberta Canada and Helena, Montana in the United States, is named the "First Special Service Force Memorial Highway." This highway was chosen because it was the route taken in 1942 by the Canadian volunteers to join their American counterparts for training at Fort Harrison. The Devil's Brigade was a 1968 film starring William Holden, Cliff Robertson, and Vince Edwards, focusing on the Force's training and deployment to Italy. The 2009 Quentin Tarantino film Inglourious Basterds was very loosely based on the Devil's Brigade, which left its black cat calling card on the bodies of killed Nazi soldiers to sow fear.