Answers to issuers' clawback implementation questions
Hot Topic | January 2024
Issuers face questions as they look to apply their new recovery policies under the SEC’s compensation clawback rules.
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
- SEC Release Nos. 33-11126 and 34-96159, Listing Standards for Recovery of Erroneously Awarded Compensation
- NYSE Listing Standards with Amendment
- Nasdaq Listing Standards with Amendment
- SEC Release No. 34-97688, NYSE Notice of Filing Amendment No. 1 to Establish Listing Standards Related to Recovery of Erroneously Awarded Incentive-Based Executive Compensation
- SEC Release No. 34-97687, Nasdaq Notice of Filing Amendment No. 1 to Establish Listing Standards Related to Recovery of Erroneously Awarded Incentive-Based Executive Compensation
- Listed issuers with limited exemptions (issuers)
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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