Tag: clawback policy
Are companies getting the clawback checkboxes right?
As you know, in 2022, the SEC adopted a new clawback rule, Exchange Act Rule 10D-1, which directed the national securities exchanges to establish listing standards requiring listed issuers to adopt and comply with a clawback policy and to provide disclosure about the policy and its implementation. Under the rules, the clawback policy had to provide that, in the event the listed issuer was required to prepare an accounting restatement—including not just “reissuance,” or “Big R,” restatements, but also “revision” or “little r” restatements—the issuer must recover the incentive-based compensation that was erroneously paid to its current or former executive officers based on the misstated financial reporting measure. The recovery policy had to apply to incentive compensation received during the three completed fiscal years immediately preceding the date that the company was required to prepare a restatement. (See this PubCo post.) The clawback rules added a requirement to include new checkboxes on the cover pages of Form 10-K, Form 20-F and Form 40-F to indicate separately (a) whether the financial statements of the issuer included in the filing reflect correction of errors to previously issued financial statements, and (b) whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the issuer’s executive officers during the relevant recovery period. (See this PubCo post.) It’s worth noting here that the first box, which applies to correction of any errors in the financial statements filed, is broader in scope than the second, which applies if the restatements needed a potential clawback analysis, even if no actual recovery was required. Apparently, there hasn’t been much action for the second box. In this article, Bloomberg reports on a study by research firm Nonlinear Analytics LLC, which showed that of “the 205 companies that reported accounting corrections in their annual financial statements so far this year, just 29—less than 15%—said they reviewed the error to see if they needed to force a compensation clawback,” i.e., reported that they performed a potential recovery analysis. And, only two of the companies that performed an analysis ended up clawing back any executive bonuses.
Do companies adopt clawback policies exceeding minimum SEC requirements?
In 2022, after seven years of marinating on the SEC’s long-term agenda, the SEC adopted rules to implement Section 954 of Dodd-Frank, the clawback provision. The rules directed the national securities exchanges to establish listing standards requiring listed issuers to adopt and comply with a clawback policy and to provide disclosure about the policy and its implementation. Under the rules, the clawback policy was required to provide that, in the event the listed issuer was required to prepare an accounting restatement—including not just “reissuance,” or “Big R,” restatements, but also “revision” or “little r” restatements—the issuer must recover the incentive-based compensation that was erroneously paid to its current or former executive officers based on the misstated financial reporting measure. (See this PubCo post.) The requirements have been in effect for a bit now. But how did companies respond? Did they stick to the script? Or, after examining their own “governance philosophies,” did companies amp up the rules to actually expand the scope of their clawback policies? This piece from consultant FW Cook reporting on their study of large cap companies showed that “80% maintain an expanded clawback policy that goes beyond the SEC requirements.”
Highlights from panels with current and former staff of Corp Fin
by Cydney Posner Below are some highlights (from my notes) of the PLI Securities Regulation Institute panel discussions Thursday and Friday with the Corp Fin staff (Keith Higgins, Shelley Parratt, David Fredrickson, Michele Anderson, Karen Garnett) as well as a number of some former staffers, plus some additional discussion from […]
SEC proposes clawback rules
by Cydney Posner At an open meeting this morning, the SEC voted, three to two, to propose rules implementing Section 954 of Dodd-Frank, the clawback provision. Both Commissioners Gallagher and Piwowar voted against the proposal. As you may recall, Section 954 required the SEC to direct the national securities exchanges […]
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