{"id":3624,"date":"2023-06-22T13:57:24","date_gmt":"2023-06-22T17:57:24","guid":{"rendered":"https:\/\/www2.law.temple.edu\/10q\/?p=3624"},"modified":"2023-06-22T13:57:24","modified_gmt":"2023-06-22T17:57:24","slug":"sec-adopts-executive-compensation-clawback-rules","status":"publish","type":"post","link":"https:\/\/law.temple.edu\/10q\/sec-adopts-executive-compensation-clawback-rules\/","title":{"rendered":"SEC Adopts Executive Compensation \u2018Clawback\u2019 Rules"},"content":{"rendered":"<p>June 22, 2023<\/p>\n<p>On October 26, 2022, the SEC adopted new rules that will require publicly traded companies to \u201cclaw back\u201d incentive-based executive compensation that a company awarded to the executive based on materially misreported financials, which later required an accounting restatement. The rules apply to compensation an executive received during the three-year period preceding a financial restatement. While the SEC has had the ability to claw back incentive-based compensation since the enactment of Sarbanes-Oxley, these new rules provide a clawback mechanism, regardless of whether the restatement was caused by fraud, error, or any other factor, whereas Section 304 of the Sarbanes-Oxley Act only allowed a clawback where a restatement was the result of misconduct.<\/p>\n<p>The New Exchange Act Rule 10D-1 is the final version of a rule that was first proposed in 2015 to implement clawback provisions contained in the Dodd-Frank Act. After receiving significant public comments in 2021 and 2022, the Commission voted 3-2, along party lines, in favor of the rule. SEC Chairman Gensler, who voted in favor of the rule, stated he believes the rules will \u201cstrengthen the transparency and quality of corporate financial statements, investor confidence in those statements, and the accountability of corporate executives to investors.\u201d The two dissenting Commissioners criticized the rule for being overly broad, and noted that the inclusion of \u201clittle r\u201d restatements represented a \u201cdramatic shift in the Commission\u2019s interpretation\u201d of the Dodd Frank Act\u2019s clawback provision.<\/p>\n<p>The final Rule is broader than the initial proposal. The proposed rule would only have permitted clawbacks for restatements to correct errors that were material to the previously issued financial statements at the time they were made, so-called \u201cbig R\u201d restatements. However, the adopted Rule applies any time a company issues a restatement, even if the error was not material when made, but is at the time of restatement. The SEC justified this broader application on the grounds that \u201cboth types of restatements address material noncompliance of the issuer with financial reporting requirements.\u201d<\/p>\n<p>Additionally, Rule 10D-1 requires national securities exchanges to establish listing standards mandating issuers to (1) adopt and comply with a policy for recovery of erroneously awarded executive compensation in the event of an accounting restatement due to material noncompliance with securities laws and (2) disclose those compensation clawback policies, as well as any actions taken pursuant to the policies. The rules will become effective 60 days after the final rule is published in the Federal Register, and the exchanges then have 90 days to propose listing standards. The Rule mandates that the listing standards become effective no later than one year following those proposals.<\/p>\n<p>Issuers that fail to adopt and comply with compensation clawback policies meeting the listing standards will be subject to delisting. While many companies may have implemented voluntary policies already, it will be important for companies with and without existing policies to carefully examine the rule\u2019s requirements and ensure their policies comply.<\/p>\n<p>The full article in its original form can be found <a href=\"https:\/\/www.ballardspahr.com\/Insights\/Alerts-and-Articles\/2022\/10\/SEC-Adopts-Executive-Compensation-Claw-Back-Rules\">here<\/a>.<\/p>\n<p><em>John Grugan (LAW \u201998) is a partner at Ballard Spahr, representing clients in government investigations and complex litigation. <\/em><\/p>\n<p><em>Kathryn Boyle (LAW \u201921) is an associate at Ballard Spahr in the firm\u2019s Litigation Department.<\/em><\/p>\n<p><em>David Axelrod is a partner at Ballard Spahr, specializing in defending corporations and individuals in government-facing litigation and in defending parties sued for defamation.<\/em><\/p>\n<p><em>\u00a0<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>June 22, 2023<br \/>\nJohn Grugan (LAW \u201998) and Kathryn Boyle (LAW \u201921) of Ballard Spahr co-authored an article with David Axelrod discussing the SEC\u2019s adoption of new rules requiring publicly traded companies to \u201cclaw back\u201d incentive-based executive compensation based on materially misreported financials regardless of whether the restatement was caused by misconduct.<\/p>\n","protected":false},"author":33,"featured_media":3627,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12,13],"tags":[2663,2664,485,2665,2666,2667,2668,2669,2670,877],"coauthors":[370,841,2662],"class_list":["post-3624","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-alumni-authored","category-business-law-practice","tag-clawback","tag-dodd-frank-act","tag-executive-compensation","tag-financials","tag-misconduct","tag-misreporting","tag-new-exchange-act-rule-10d-1","tag-publicly-traded-companies","tag-sarbanes-oxley-act","tag-securities-and-exchange-commission","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>SEC Adopts Executive Compensation \u2018Clawback\u2019 Rules - The Temple 10-Q<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/law.temple.edu\/10q\/sec-adopts-executive-compensation-clawback-rules\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"SEC Adopts Executive Compensation \u2018Clawback\u2019 Rules - The Temple 10-Q\" \/>\n<meta property=\"og:description\" content=\"June 22, 2023 John Grugan (LAW \u201998) and Kathryn Boyle (LAW \u201921) of Ballard Spahr co-authored an article with David Axelrod discussing the SEC\u2019s adoption of new rules requiring publicly traded companies to \u201cclaw back\u201d incentive-based executive compensation based on materially misreported financials regardless of whether the restatement was caused by misconduct.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/law.temple.edu\/10q\/sec-adopts-executive-compensation-clawback-rules\/\" \/>\n<meta property=\"og:site_name\" content=\"The Temple 10-Q\" \/>\n<meta property=\"article:published_time\" content=\"2023-06-22T17:57:24+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/law.temple.edu\/10q\/wp-content\/uploads\/sites\/12\/2023\/06\/Photo-scaled-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1426\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"David L. 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