Implementing compensation clawback requirements

Our Q&As explain key requirements of an issuer’s recovery policy and the related clawback rules and listing standards.

Applicability

• SEC Release Nos. 33-11126 and 34-96159, Listing Standards for Recovery of Erroneously Awarded Compensation
• NYSE Listing Standards Proposal
• NASDAQ Listing Standards Proposal
• Listed issuers (issuers) with limited exceptions

Relevant dates

• NYSE and NASDAQ released proposed listing standards intended to meet minimum requirements of the clawback rules on February 22, 2023.
• These proposals provide for a 21-day comment period, with comments due on or before April 3, 2023.
• The SEC must approve the final standards no later than November 28, 2023.
• Issuers will have 60 days following SEC approval to adopt their recovery policies. This means the recovery policy must be adopted no later than January 2024 and possibly during calendar 2023.

Key impacts

The clawback rules resulted in the SEC issuing a new rule (Exchange Act Rule 10D-1) and amending existing rules and forms to implement the provisions required by Section 954 of the Dodd-Frank Act. The rules are intended to be applied broadly to any incentive-based compensation received by executive officers that is granted, earned or vested based wholly or in part on the attainment of any financial reporting measure.

Management and audit committees should plan now for the affect the rules will have on executive compensation plans, internal controls, disclosure requirements and more.

Report contents

• Overview
• Executive officers
• Incentive-based compensation
• Financial reporting measure
• Recoverable amount
• Recovery period
• Materiality, restatements and error corrections
• Internal controls
• Accounting for share-based payments
• Effective dates and transition
• Other considerations

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