SEC adopts exec comp clawbacks

Stock exchanges’ listing standards will have to include provisions that allow companies to claw back executive compensation, under new rules adopted by the U.S. Securities and Exchange Commission (SEC) today.

The regulator voted in favour of rules that require exchanges to adopt listing requirements that oblige issuers to implement policies for recovering “erroneously awarded” incentive compensation from past and current executives.

“I believe that these rules will strengthen the transparency and quality of corporate financial statements, investor confidence in those statements, and the accountability of corporate executives to investors,” SEC chair Gary Gensler said in a release.

The executive compensation clawback rules were first proposed back in 2015 as part of the Dodd-Frank reforms that were introduced in the wake of the global financial crisis. After being shelved, the proposals were revived in October 2021, when they were reissued for comment.

Under the new rules, exchanges will now need listing standards requiring issuers to establish clawback policies and to include them in their annual reports. It also requires disclosure when clawbacks are triggered.

“Through today’s action and working with the exchanges, we have the opportunity to fulfill Dodd-Frank’s mandate and Congress’s intention to prevent executives from keeping compensation received based on misstated financials,” Gensler said.

The final rules take effect in 60 days, and exchanges have 90 days to propose compliant listing standards, which must take effect within one year.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.