TOPIC: Q&A - SEC’s Proposed Rules for Stock Exchanges to Adopt Policies Requiring Member Companies to “Clawback” Excess Incentive-Based Compensation.
MARKET TREND: There continues to be serious concern over the compensation of certain public company executives. The SEC’s proposed rules, stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, attempt to address the matter.
SYNOPSIS: The SEC’s proposed rules define the issuers and executives to whom a compensation recovery policy must apply. These rules specify the circumstances in which the recovery policy would be triggered, the compensation subject to recovery, and the methodology for determining the recoverable amounts.
TAKE AWAYS: Listed (public company) issuers should review their existing clawback policies in light of the proposed rules. While well-accepted compensation theories advocate tying compensation to a company’s financial performance, given the SEC’s proposed rules and the current market trend, issuers may wish to reduce the amount of compensation that is contingent upon the satisfaction of financial reporting measures, so as to reduce their executive officers’ exposure to clawback. To the extent that compensation will be based on the achievement of financial reporting measures, per the proposed rules, the compensation awards should include explicit language to facilitate clawback, if required.
MAJOR REFERENCES: SEC RELEASE NO. 33-9861 - PROPOSED RULE - “LISTING STANDARDS FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION.”
Click to download the printable pdf.
MARKET TREND: There continues to be serious concern over the compensation of certain public company executives. The SEC’s proposed rules, stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, attempt to address the matter.
SYNOPSIS: The SEC’s proposed rules define the issuers and executives to whom a compensation recovery policy must apply. These rules specify the circumstances in which the recovery policy would be triggered, the compensation subject to recovery, and the methodology for determining the recoverable amounts.
TAKE AWAYS: Listed (public company) issuers should review their existing clawback policies in light of the proposed rules. While well-accepted compensation theories advocate tying compensation to a company’s financial performance, given the SEC’s proposed rules and the current market trend, issuers may wish to reduce the amount of compensation that is contingent upon the satisfaction of financial reporting measures, so as to reduce their executive officers’ exposure to clawback. To the extent that compensation will be based on the achievement of financial reporting measures, per the proposed rules, the compensation awards should include explicit language to facilitate clawback, if required.
MAJOR REFERENCES: SEC RELEASE NO. 33-9861 - PROPOSED RULE - “LISTING STANDARDS FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION.”
Click to download the printable pdf.
RSS Feed
