SEC’s New Executive Compensation Clawback Rules To Become Effective In January 2023 – What That Means For Public Companies

On October 26, 2022, the Securities and Exchange Commission (SEC) adopted final rules that require national securities exchanges, including the New York Stock Exchange and The NASDAQ Stock Market, to establish new listing standards relating to policies for the recovery of erroneously awarded incentive-based executive compensation. These types of policies are typically referred to as “clawback policies.” Specifically, under the new listing standards, a company listed on any national securities exchange will be required to adopt a clawback policy providing that, in the event the company is required to prepare an accounting restatement, it will recover incentive-based compensation paid to its current or former executive officers based on any misstated financial reporting measure. The clawback policy must apply to compensation received during the three-year period preceding the date the listed company is required to prepare the accounting restatement. In addition, the new rules require a listed company to file the policy as an exhibit to its annual report and to include disclosures related to its recovery policy and recovery analysis in the event that a recovery is triggered under its clawback policy.