Client Alert – CLAWBACK Update

An Update on Executive Compensation Clawbacks

Back in October 2022, the SEC adopted final rules detailing listing standards for “Recovery of Erroneously Awarded Compensation” – or more commonly known as “clawbacks.”  The rules, implemented 12 years after the passing of Dodd Frank, are summarized for reference. In an interesting turn of events, the SEC, after putting the wheels in motion for the stock exchanges to propose their own listing standards (which they did in March of this year), recently extended the time period for approval of the exchanges’ proposed clawback standards for listed issuers.  This extension seems to be in response to the volume of comments the SEC received from interested parties since its adoption of final rule guidance back in October.  As it currently stands, the SEC’s approval date for the exchanges’ proposals is now June 11, 2023 (previously was April 27, 2023).


In the proposed listing standards, listed companies will need to adopt a compliant policy no later than 60 days following the effective date of the rule, which is defined in said proposed standards as the SEC’s approval date.  As a result of the SEC’s extension, listed companies now have a little more preparation time, until around August 10, 2023, to ensure they are compliant with final rules approved by the SEC.  It is important to note that this date is subject to change depending on the date of actual approval.


What Should You Do Now?

To date, clawback policies are prevalent across the S&P 500, but not as much across the broader the Russell 3000. If you are subject to these new requirements, we recommend executing one of the following over the summer:

  • If you already have a clawback policy in place, chances are it’s broader in nature than what will be required by the SEC.  Consider either amending this policy to comply with the requirements (once they are set in stone) or adopting a separate, more narrow policy that will meet the letter of the law and coexist with your current policy.

  • If you do not have a clawback policy in place, implement one that meets the standard of the SEC’s requirements.  We note that as the market evolves, trends in your marketplace (defined by industry, company size, etc.) may warrant adding in other provisions, which is easy to do.

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