Action Items

  • Understand the expected timing for final implementation of the new clawback requirements – while the date for initial compliance is still somewhat uncertain, the latest that date might be is January 27, 2024. Therefore, prompt action is required.
  • Failure to comply with the new clawback requirements will result in delisting.
  • Discuss the new clawback requirements with the company’s board of directors, including the compensation and audit committees.
  • Notify the company’s relevant internal teams (e.g., legal, human resources, finance, accounting, etc.) of the new clawback requirements so they can be prepared to comply.
  • Review any existing clawback policies to determine the impact of the new requirements on such existing policies.
  • Consult with legal counsel regarding implementation of the new clawback requirements.


In October 2022, the Securities and Exchange Commission (“SEC”) issued final incentive compensation clawback rules (the “Clawback Rules”) under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Those final rules directed the national securities exchanges to establish listing standards requiring companies to develop and implement an incentive compensation clawback policy. At the end of February 2023, the Nasdaq Stock Market (“Nasdaq”) and the New York Stock Exchange (“NYSE”) released their proposed listing standards implementing the Clawback Rules. Once published in the Federal Register, there will be a 21-day public comment period after which the SEC will approve the standards. The latest date by which the listing standards will become effective is November 28, 2023, and the latest possible date for initial compliance would then be January 27, 2024 (i.e., 60 days following the effective date).

The required clawback policy must mandate recovery of incentive-based compensation from current and former executive officers who received such compensation during the three fiscal years preceding the date on which the company is required to prepare an accounting restatement due to material noncompliance of the company with any financial reporting requirement under the securities law. The Nasdaq and NYSE proposed listing standards closely track the Clawback Rules.

With very limited exceptions, the Clawback Rules apply broadly to all issuers with listed securities, including foreign private issuers, emerging growth companies, smaller reporting companies, controlled companies and issuers of listed debt whose stock is not also listed.

Written Clawback Policy & Disclosure Requirements

Within 60 days following the effective date of the applicable listing standards, issuers will have 60 days to adopt a compliant clawback policy. The policy must be written and filed as an exhibit to the issuers Form 10-K (or Form 20-F and 40-F). In addition, the Clawback Rules add a new requirement pursuant to which companies will be required to disclose in their proxy and Form 10-K certain information relating to any accounting restatement and clawback obligations related thereto.

Incentive-Based Compensation

The Clawback Rules define “incentive-based compensation” to mean any compensation that is granted, earned or vested based in whole or in part upon the attainment of any “financial reporting measure.” Such compensation can include cash or equity. A “financial reporting measure” is any measure that is determined and presented in accordance with the principles used in preparing the company’s financial statements, and any measure derived in whole or in part from such measures. A “financial reporting measure” is subject to the rule even if it is not actually presented in the company’s financial statements or included in an SEC filing. Incentive-based compensation does not, however, include most time-vested equity awards.

Current & Former Executive Officers Covered

The Clawback Rules apply to any current or former executive officer of the issuer who served in that capacity at any time during the applicable three-year look-back period. “Executive officer” is defined broadly to cover the issuer’s president, principal financial officer, principal accounting officer, any vice-president in charge of a principal business unit, division or function and any other person (including executive officers of a parent or subsidiary) who performs similar policy-making functions.

Three-Year Look-Back Period

The Clawback Rules apply to incentive-based compensation received during the three-year “look-back period” which is defined to be the three completed fiscal years immediately preceding the date that a restatement is required subject to the clawback policy. Compensation is deemed “received” during the period when the performance measure that must be achieved is attained, rather than when the award is granted, vested or actually paid.

Amount Subject to Recovery

Under the Clawback Rules, a company must recover from the executive officer any amount of incentive-based compensation received in excess of what would have been paid if the compensation had been calculated based on the restated financial statements. The calculation is made on a pre-tax basis.

Limited Opportunity for Board Discretion to Not Seek Clawback

 A company is required to claw back compensation in accordance with its policy unless the company’s independent compensation committee (or, in the absence of such a committee, a majority of the board’s independent directors) has determined that clawback would be impracticable and one of the following three conditions is also true: (1) the expense of enforcing the clawback would exceed the amount recovered and the company made a reasonable attempt to recover (and documented such attempt and provided such documentation to the exchange); (2) application of the clawback policy would violate home country law that existed at the time of adoption of the rule (and the company provides an opinion of counsel to that effect to the exchange); or (3) clawback would cause a tax-qualified retirement plan to fail to meet applicable tax-qualification requirements.

Failure to Comply

Failure to comply with the Clawback Rules will result in delisting by the applicable exchange.

We Can Help You

We thoughtfully approach each of our client’s legal needs and provide individually tailored solutions to help our clients both meet developing legal requirements and strengthen their investor relations. Please contact us if you would like to discuss the Clawback Rules and their application to, and impact on, your compensation programs.

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