Clawback in Executive Compensation: Tackling Managerial Myopia

Abstract

This paper aims to determine whether clawback provisions are an effective compensation tool for deterring executives from increasing a company's risk exposure. By examining data from two cases involving Indian private banks that implemented clawbacks for their former managing director and CEO, the study argues that regulatory mandates for including clawbacks in executive compensation can promote a long-term focus among executives. This, in turn, helps companies avoid potential financial and reputational damage caused by willful or negligent actions of their executives. In contrast to the western world our findings show that the reasons for implementing clawbacks are more linked to non-financial misconduct than financial. The paper contributes to the literature on clawbacks in executive compensation within emerging economies and underscores their importance in mitigating short-termism in corporate decision-making.