Rank-and-file employees at Reynolds American Inc. have something in common with the company's top executives when it comes to the outcry about unearned bonuses and compensation.

If participants in Reynolds' annual incentive-award plan receive excess bonus money as the result of an accounting error or financial restatement, the company's board of directors can now take back the extra amount.

For example, a Reynolds production worker may be eligible for a $3,000 annual performance bonus.

If an accounting or other error results in the company's revenue passing a threshold goal, thus generating a higher bonus, the excess payment could be recouped if the error is caught.

"The company is protecting itself from being financially harmed from any unintentional errors," said Seth Moskowitz, a spokesman for Reynolds.

The goal of retrieving unearned bonuses and other compensation from executives has been supported by shareholder-advocacy groups since the Sarbanes-Oxley Act was passed in 2002.

However, the effort really took off last summer as the credit crunch put the spotlight on lavish executive compensation by banks. President Obama is pushing for a total-compensation cap of $500,000 for senior executives at companies that participate in the federal bailout plan.

U.S. Sen. Olympia Snowe, R-Maine, wants the government to have the ability to take back bonuses already paid to senior executives at firms that received money in the final quarter of 2008 from the federal bailout program. The take-back provisions in Section 304 of Sarbanes-Oxley covers just chief executives and chief financial officers, and usually only for the previous 12 months of restated financial reports.

"The Troubled Asset Relief Program's setting of compensation policies in corporate America is beginning to extend way beyond banking," said Tony Plath, a finance professor at UNC Charlotte.

Reynolds is not alone in amending its compensation plan for unearned payouts.

According to Equilar Inc., an information-services company specializing in executive compensation, 64 of the Fortune 100 companies have a take-back policy aimed at fraud, as well as accounting and other errors.

The decision by Reynolds' board, however, does place it in a small circle of large corporations that include all employees in its unearned-compensation policy. According to Equilar, just 18 percent of Fortune 100 companies applied their policy to all employees.

Moskowitz said that the new policy also covers the long-term incentive plan for top executives.

"This only applies to excess payments due to material inaccuracy," Moskowitz said. "It doesn't affect employees receiving what they would/should have received as a bonus under the plan if the inaccuracy hadn't existed."

He added that Reynolds is not required to take the inaccurate overpayment back.

Lowe's Cos. went a step further with its take-back policy, even though Section 304 of Sarbanes-Oxley deals with executive compensation gained through fraudulent means.

Lowe's issued a press release last week saying that its board can pursue recoupment of executive bonuses if it determines "that an executive officer engaged in fraud or intentional misconduct that caused or substantially caused a significant restatement of the company's financial results."

"This additional corporate-governance policy demonstrates our board's continued leadership and commitment to aligning management's interests with those of our shareholders," said Robert Niblock, the chairman and chief executive of Lowe's.

Moskowitz said that Section 304 of Sarbanes-Oxley is the reason that Reynolds did not include fraud in its take- back policy.

Analysts said that the policies from Lowe's and Reynolds reflect not only best practices for corporate governance, but also serve as a disincentive to officials who may want to manipulate financial data for extra compensation.

BB&T Corp. recently established a take-back policy similar to Reynolds - focusing on recovering unearned compensation if awarded based on "materially inaccurate financial statements or any other materially inaccurate performance metric criteria."

BB&T's policy affects only its executive-management team, spokesman Bob Denham said.

All three N.C. companies don't expect that they need to use their new take-back policies.

"We have a solid history of accounting accuracy, but if something does inadvertently happen with our financial numbers, it does give the company the ability to recoup the excess compensation," Moskowitz said.

Plath also said he believes that the new take-back policies will be little used.

"The companies with the (take-back) policies are just being proactive in placing this sort of language in the proxy, just in case they're ever sitting across the table from Barney Frank like the top banking executives were," Plath said.

"In that unhappy event, management wants to look like it's been behaving responsibly all along, rather than rushing something out just in time for a congressional inquiry."

Michael Lord, an associate professor of management at Wake Forest University, said he expects more corporations to add take-back policies.

"Both public outrage and investor skepticism will continue to put pressure on boards to act," Lord said. "Corporate-compensation practice has been broken for some time. It's been based on a lot of self-serving and delusional smoke and mirrors."

Among the corporations recently drawing the ire of investors for having to make financial restatements are Dell Inc. and Krispy Kreme Doughnuts Inc.

Both had their share price plummet since having to make major financial restatements of several quarterly reports that were signed off on by former top executives. Dell established a take-back policy for top executives last year, which some analysts consider as a standard for corporations.

Lord said he supports giving banks and financial institutions the ability to take back unearned executive compensation over at least a five-year period.

Companies have shown the ability to "manipulate financial results to make it look good for a quarter or two, or even a year or two," Lord said. "That's plenty of time for executives to cash in huge bonuses and stock options.

"Employees, communities and shareholders then have to deal with the mess that's been swept under the rug. If this is the start of a trend, it's a healthy and much-needed trend, and long overdue."

n Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.