Strategies for Executive Compensation: Design and Tax Issues for a ...

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U.S., a wide range of incentives are subject to disgorgement in Canada, with a typical
look-back period of two to three years. 6
Clawback provisions have been commonly categorized into the following three major
categories:
(1) the first category covers “bad faith” conduct which includes the breach of
non-compete policies, and more generally conduct that is not in good faith
and goes against the best interests of the company.
(2) The second major category covers fraud, negligence or intentional
misconduct, where the employee has unearned income as a result of
fraudulent or negligent conduct leading to financial results that need to be
revised at a later point.
(3) The third major categories are clawbacks that are triggered directly by a
restatement of financial results, with no need for the company to show a
causal link between the negative revision and employee misconduct.
Companies may adopt a combination or all of these measures in their clawback
policies, and the following examples will demonstrate that companies may adopt
language that is not clearly caught by these categories. Overall, it seems however, that
the inclusion of strict restatement clawbacks is increasingly common, particularly in
Canadian entities that adopt such provisions.
6 Ibid