On October 26, 2022, the SEC adopted its much-anticipated final clawback rules requiring U.S. listed issuers to:
- develop and implement a policy for the recovery of incentive-based compensation that is erroneously “received” by current and former executive officers during the three completed fiscal years immediately preceding the date that the issuer is required to prepare an accounting restatement (capturing both “Big R” and “Little R” restatements); and
- file that policy as an annual report exhibit and satisfy related disclosure obligations in accordance with SEC rules.
The rule, known as Rule 10D-1, directs national securities exchanges to establish implementing listing standards within 90 days from publication of the final rule in the Federal Register. Companies that fail to comply with the rule may be delisted.
U.S. listed issuers who do not already have a clawback policy should begin preparations to design, adopt and implement a policy that complies with the listing standards once established. Issuers that have already adopted a clawback policy should consider whether any changes may be necessary. In addition, issuers should consider any impact the new requirements will have on their current and future incentive-based compensation plans, programs, agreements and arrangements and should ensure that such arrangements contain appropriate clawback provisions, noting that the listing rules will apply retroactively to compensation under arrangements entered into prior to their effective date but “received” (under Rule 10D-1) thereafter.
For more information on the impact of the incentive compensation clawback rules on U.S. listed issuers, please read our client alert here.
Sinead Kelly is a partner in Baker McKenzie’s Compensation practice in San Francisco. She advises on U.S. executive compensation and global equity and has practiced in the compensation field since 2005. In her practice, Sinead counsels U.S. and non-U.S. public and private companies on all aspects of equity and executive compensation plans and arrangements, including plan design, drafting, administration and governance. In this regard, Sinead advises on and assists companies with compliance with U.S. federal and state securities and tax laws relating to compensation arrangements, as well as with preparing SEC disclosures, complying with stock exchange rules and addressing non-U.S. tax and regulatory requirements. She has been repeatedly recognized by Legal 500 as a leading lawyer for Executive Compensation and Employee Benefits.
Thomas Asmar has almost two decades of experience advising public and private companies, as well as private equity funds, on all employee benefits and compensation issues arising out of mergers, acquisitions, IPOs, financings and other corporate transactions. Thomas counsels companies in a variety of industries on the design and implementation of compensation arrangements, including employment agreements, equity compensation plans, incentive compensation, deferred compensation, severance agreements and change-in-control arrangements.
Victor Flores is a partner in Baker McKenzie’s Employment & Compensation Practice, with a focus on Executive Compensation and Employee Benefits. Victor advises global US and non-US companies – both public and private – on all aspects of executive compensation and benefits matters, including the corporate, securities and tax law, and ERISA issues arising in the implementation and administration of compensation programs. He regularly helps clients with the design and implementation of equity and non-equity based incentive compensation programs and nonqualified deferred compensation programs. Victor also has extensive experience advising on compensations and benefits issues in mergers and acquisitions, corporate reorganizations, private equity and other corporate transactions.
Roger Bivans is a seasoned lawyer focused on strategic transactions, including domestic and multinational mergers and acquisitions, carve-out and joint venture transactions, capital markets transactions, securities regulation and corporate governance matters and general commercial transactions. He is recognized by Chambers USA for Corporate/M&A. A frequent speaker on securities regulation, he is the current Dallas chapter president of the Society for Corporate Governance and moderator of the DFW Securities Law Discussion Group. Mr. Bivans previously served as a surface warfare officer in the United States Navy.