SEC Adopts Final Clawback Rule

The Securities & Exchange Commission on Wednesday adopted a new rule requiring companies to recoup “erroneously awarded” incentive-based compensation after filing a restatement to correct inaccurate financials. It also goes a step further than what was initially proposed in 2015 by including both “Big R'” and “little r” restatements as potential clawback triggers under these policies.

Approved in a 3-2 vote, with Commissioners Hester Peirce and Mark Uyeda voting in opposition, the rule requires exchanges to prohibit the listing of securities from issuers that fail to develop and implement clawback policies for erroneously-awarded compensation, or fail to disclose that policy.

…Some of the opposition was due to the fact that many companies have already put in place their own clawback policies.

For instance, nearly all S&P 500 companies disclose a clawback provision in proxies or in documents on their websites, such as in company guidelines or bylaws, and the number of these disclosures has been growing over the past five years. In 2018. 91% of companies in the S&P 500 listed a clawback provision, according to data from public company intelligence provider MyLogIQ. In 2022, the number increased to 95%.

Similarly. the number of Russell 3000 companies disclosing a clawback policy also increased over the past five years, growing from 70% in 2018 to 73% in 2022, according to the data.