Hot Topic | January 2024

Insight

Answers to issuers' clawback implementation questions

Issuers face questions as they look to apply their new recovery policies under the SEC’s compensation clawback rules.

Timothy Brown

Timothy Brown

Partner, Dept. of Professional Practice, KPMG US

+1 212-954-8856

Ellen Russo

Ellen Russo

Managing Director, Dept. of Professional Practice, KPMG US

+1 510-604-8759

Timothy Phelps

Timothy Phelps

Partner, Dept. of Professional Practice, KPMG US

+1 212 872 3249

Nick Burgmeier

Nick Burgmeier

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5455


Issuers were required to adopt their clawback policies by December 1, 2023. Our updated Q&As offer guidance and clarifications about the disclosure and application requirements. We also explain key elements of an issuer’s recovery policy and the related clawback rules and listing standards.

Applicability

Relevant dates

  • NYSE and Nasdaq released proposed listing standards intended to meet minimum requirements of the clawback rules on February 22, 2023.
  • NYSE and Nasdaq filed amendments with the SEC, delaying the effective date of the proposed listing standards to October 2, 2023.
  • The SEC approved the NYSE and Nasdaq listing standards, including amendments, on June 9, 2023.
  • The listing standards were effective on October 2, 2023 and issuers were required to adopt their recovery policies by December 1, 2023.

Key impacts

The SEC issued a new rule (Exchange Act Rule 10D-1) and amended 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 that is granted, earned or vested based wholly or in part on the attainment of any financial reporting measure.

On June 9, 2023 the SEC approved the national exchanges’ amended listing standards, which included an effective date of October 2, 2023.

Issuers were required to finalize and implement their recovery policies by December 1, 2023.

Management and audit committees should be completing their evaluations of the effect the policies 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
  • Accounting for shared-based payments
  • Income tax and payroll considerations
  • Internal controls
  • Effective dates and transition
  • Other considerations

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