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When the U.S. Securities and Exchange Commission finalized long-awaited rules requiring companies to “claw back” executive pay after corrections in their financial statements, critics warned that boards would adjust CEO pay packages to shield executives from potential losses. But new research tells a different story that could be reassuring to investors: Companies are improving their accounting practices to prevent errors in the first place.

Andrea��Pawliczek

The SEC’s clawback rule is a product of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted after the global financial crisis with the aim of recovering executive pay tied to misstated financial results. After years of debate and revisions, the rule finally took effect in October 2022.��

In a researchers with the Leeds School of Business analyzed data from 2019 to 2024 on U.S. public companies affected by the rule, including firms that adopted clawback policies when it took effect in 2022 as well as those that had already done so voluntarily.

“Importantly, we didn’t see CEO pay increasing or firms shifting away from performance-based compensation,” said��Bryce Schonberger, a co-author of the study and assistant professor of accounting. “That was surprising.”��

In earlier work related to a related Dodd-Frank provision—the CEO pay-ratio disclosure rule—Schonberger found that company boards often restructured executive pay to offset potential backlash. He expected a similar response under the clawback rule, but found no sign that companies weakened performance-based incentives, an outcome he called both unexpected and meaningful.

“We’re seeing encouraging signs,” said��Andrea Pawliczek, assistant professor of accounting at Leeds and co-author of the study. “Firms are hiring more accounting staff and strengthening their financial reporting to avoid errors in the first place.”

The researchers, who also included Michael Dambra, associate professor of accounting and law at the University at Buffalo SUNY, tracked how newly affected companies differed from those that already had clawback policies in place to see how the rule itself changed companies’ behavior.

Bryce��Schonberger

The results show that newly affected companies invested more heavily in financial reporting by hiring additional accountants, paying higher audit fees and more quickly releasing earnings reports. Some companies also added more ways to gauge performance in CEO pay plans, further linking their pay to performance.

Investors responded positively to the new rule, according to the paper. Share prices for affected firms rose slightly—about 1% to 2%—around key SEC announcements, indicating that the market viewed the rule as a positive change, Schonberger said. Analyst coverage of these companies also increased, he added, signaling greater investor attention and confidence.

So far, only a handful of companies have reported clawbacks under the new SEC rule. For instance, in April 2025 Macy’s recovered $600,000 in executive bonus compensation because it misclassified over $150 million in delivery expenses over three years.

Schonberger noted that financial restatements often take years to surface, so it will be some time before the rule’s full impact on misreporting becomes clear.��

“It’ll be interesting to see how markets and the media react when larger clawbacks eventually happen,” he said. But so far, the results reflect a broader shift among companies toward transparency and market visibility, Pawliczek said.��

“From an investor’s perspective, what matters is alignment. You want the CEO’s incentives tied to firm performance,” Pawliczek said. “Our findings—that companies aren’t shifting away from pay-for-performance—should reassure investors that those incentives remain in place.”