Following its reopening of the comment period in October 2021 and again in June 2022 for the Dodd-Frank Act-prompted executive compensation clawback proposal (reported on here and here), the SEC adopted (on a 3-to-2 vote) the final rules at an open meeting today.
The rules require the national exchanges to adopt listing standards within 90 days—and effectuate those standards as to listed issuers within one year—of publication of the release in the Federal Register. Listed companies will be required to adopt a compliant clawback policy, which will be required to be filed as an exhibit to the Form 10-K, within 60 days of the listing standards effective date.
According to the SEC's Fact Sheet, the scope of the rules includes restatements to correct an error that would result in a material misstatement if the error were corrected in the current fiscal period or left uncorrected in the current period (“Little r” restatements), current and former executive officers, and a three-year look-back period.
Listed companies will be required to pursue recovery of compensation from executives except in limited circumstances, such as instances where direct expenses paid to third parties to help enforce the clawback policy would exceed the amount to be recovered and the company has made a reasonable attempt to recover third-party costs.
As previously reported, the Society submitted a comment letter on the initial proposal in September 2015, and another comment letter in November 2021 in response to the reopening of the comment period, which, among other things, recommended the scope of the rules be limited to restatements that are material to prior financial statements (“Big R” restatements) and to principal officers and those who contributed directly to a restatement.
See SEC Chair Gary Gensler’s statement; these supporting statements from Commissioner Crenshaw and Commissioner Lizárraga; and these dissenting statements from Commissioner Peirce and Commissioner Uyeda.
Access additional information & resources on our Clawbacks page.
This post first appeared in the weekly Society Alert!