As anticipated, the SEC announced on October 14th that it would
reopen the comment period for the proposed clawbacks rule. The comment period will be open for 30 days once it is published in the Federal Register, which should be soon.
As a refresher, the SEC originally proposed rules in July 2015 that mandated the following:
- Boards must claw back incentive payments from the previous three years if those incentives were paid based on subsequently restated financial results.
- Clawbacks would not be conditioned on fraud or misconduct.
- Boards would have some discretion into how the funds are recouped.
SEC Chairman Gary Gensler
released a statement expressing his support for reopening the comment period and finalizing this rule. Importantly, his statement does not include language regarding clawbacks in the face of reputational harm without a financial restatement. This is the primary difference in terms of how companies are using clawbacks now versus in 2015, and although practice is slowly evolving, we would not expect or want the SEC to adapt its proposed rule to mandate clawback policies include provisions for reputational harm.
- 96 of the top 100 companies now disclose that they have a clawback policy.
- 45 require clawbacks only in instances of fraud or misconduct related to a restatement.
- 37 do not require fraud or misconduct to trigger a clawback.
- Only 7 of the disclosed policies were technically compliant with the SEC proposal.
The Center is preparing to submit updated comments on the proposed rule and will solicit input from Subscribers as part of that process.
