Noting his support of the Dodd-Frank Act, Senator
Scott Brown (R-MA) reminded JP Morgan Chase & Co. that if the recent $2
billion trading loss leads to a restatement of the company’s first quarter
results, Dodd-Frank requires that any incentive compensation that would not have
been awarded under the earnings restatement be subject to a mandatory clawback under
a strict liability standard. In a letter to the firm’s CEO, Senator Brown noted
that the company’s 2012 proxy statement says that, with regard to employee
incentive compensation, the firm retains the right to reduce current year
incentives to redress any prior imbalances that the firm subsequently
determines to have existed, and a clawback review or other recovery mechanism
may be initiated as a result of a material misstatement of earnings.
It is the hope of Senator Brown that the company will
use this proxy provision to its full potential to address the situation. He emphasized
that exercising this provision would send a strong signal to investors and the
financial markets that company employees that take outsized risks in search of
short-term profits at the expense of the firm’s long-term success will face
financial penalties. Dodd-Frank is, in part, designed to help curb unnecessary risk
taking in the financial sector. While it is important to adopt regulations
implementing Dodd-Frank, reasoned Senator Brown, it is also very important that,
when unprecedented mistakes occur, companies use their internal policies to
promote employee accountability.