The SEC has finalized its long-awaited clawback policy mandated by the Dodd-Frank Act, issuing final rules that are scheduled to go into effect in late January 2023. ESG columnist John Peiserich offers his take on the nuances of the rule and the ripple effects it might have.
The rule, formally titled “Listing Standards for Recovery of Erroneously Awarded Compensation Final Rule,” requires clawing back incentive-based executive compensation that was awarded based on a company reaching certain financial targets if it is later discovered that those financials were inaccurately reported. It applies even if the executive cannot be found to be at fault for the error and would apply for both current and former executives.
However, the final rule’s text includes language that wasn’t anticipated. It provides that executives can be made to disgorge the compensation, even if the financial report reissue was to correct a nonmaterial error that may become material if left uncorrected — a “little r” restatement. Of course, “big R” restatements, those corrections that are issued because a financial statement was in error at the time of issuance, can also trigger reimbursement.
The rule specifies the executives that are subject to clawback and defines an executive officer as, “The issuer’s…
