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.