SEC Clawback Rules May be Broader than Boards Remember

The Securities & Exchange Commission is on the verge of adopting proposed rules that would ultimately require companies to claw back incentive compensation from executives after filing a restatement to correct inaccurate financials. However, a memo released in June with the reopening of a comment period on the latest proposal is raising questions among legal and accounting experts.

Under the commission’s proposal, which was prompted by the Dodd-Frank Act and has been years in the making, after a restatement, companies would be required to analyze whether executives could have received too much incentive compensation based on the erroneous financials, and then, if so, require execs to give back the amount of incentive-based comp that exceeds the amount they would have received under the correct financial calculations.

…Indeed, over the past five years the number of companies incorporating clawback policies has slowly grown. In 2018, for instance, 91% of companies in the S&P 500 listed a clawback provision in proxies or in documents on their websites such as company guidelines or bylaws, according to data from public company intelligence provider MyLogIQ. In 2022, that number grew to 95%. Only 13 companies in the S&P 500 did not disclose clawback policies in their proxies or in documents on their websites. These companies included major players such as Alphabet, Berkshire Hathaway and Meta Platforms. Likewise, the percentage of Russell 3000 companies disclosing clawback provisions was 70% in 2018 and rose to 73% in 2022, according to the same data.