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Corporate Governance and Executive Compensation Update

SEC Adopts Final Rules That Will Require the Recovery of Erroneously Awarded Compensation

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On October 26, 2022, the U.S. Securities and Exchange Commission (SEC) adopted final rules relating to the recovery of erroneously awarded incentive-based executive compensation also known as the “clawback” rules.1 The long-awaited rules implement Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The rules direct the national securities exchanges to establish listing standards that require issuers to adopt, disclose and comply with a written compensation clawback policy as a condition to listing securities on a national securities exchange. The policy would apply in the event the issuer is required to prepare an accounting restatement due to the issuer’s material noncompliance with any financial reporting requirement under the securities laws. The policy must mandate the recovery of any incentive-based compensation awarded to a current or former executive officer in excess of compensation that would have otherwise been received during the three-year period preceding the date the issuer is required to prepare an accounting restatement. The rules also require listed issuers to file their clawback policies as an exhibit to their annual reports and to disclose certain information if recovery is triggered under the policy.

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