How the SEC’s New Clawback Rules Could Operate in Practice: A Hypothetical

On December 1, 2023, the clawback policy listing standards established by NASDAQ and NYSE went into effect. Specifically, these listing standards require issuers to implement policies that require the issuer to recover erroneously awarded compensation received by current and former executive officers during the three-year period preceding the date the issuer is required to prepare an accounting restatement. Implementation and continued compliance with the policies established by these listing standards present complexities in assessing whether the policy has been triggered and, once triggered, who has to remit what forms of “incentive-based compensation” and how much of such compensation needs to be recovered.