SEC Adopts Final Rules Mandating Compensation Clawback Policies

On October 26, 2022, the Securities and Exchange Commission (SEC) adopted final rules implementing Section 954 of the Dodd-Frank Act by directing national securities exchanges and associations, such as the New York Stock Exchange and Nasdaq, to adopt listing standards that will require listed companies to develop and implement compensation clawback policies.

Under the final rules, listed companies will be required to have written compensation clawback policies that require the recoupment of certain incentive-based compensation received by current or former “executive officers” when an issuer has an accounting restatement. Listed companies will also be required to make certain disclosures about their clawback policies. The listing standards will generally apply to all issuers with a class of securities listed on a national securities exchange or association, including foreign private issuers, controlled companies, smaller reporting companies and emerging growth companies.

The final rules materially expand the scope of the SEC’s original compensation clawback policy proposal published in 2015 as set forth in our client alert at that time. Public companies and their audit and compensation committees, executive officers and outside advisors should begin preparing now to deal with the significant implications of the final rules.

Timing

  • The national securities exchanges and associations must propose listing standards on clawback policies no later than 90 days after the publication of the final rules in the Federal Register.
  • The listing standards must be effective no later than one year after the publication of the final rules in the Federal Register.
  • Issuers must adopt compliant clawback policies within 60 days after the effective date of the listing standards.

Read more from Foley & Lardner LLP’s Joshua Agen, Jessica Lochmann, Leigh Riley, John Wilson, and Samuel Wine.

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Louis Lehot

Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley office. Follow on Twitter @lehotlouis