The Advisors' Blog

Yesterday, the SEC announced that it has (once again!) reopened the comment period for proposed listing standards relating to recovery of erroneously awarded compensation. This is the second time in less than one year that the Commission has reopened the comment period for its 2015 proposal, which would implement Section 954 of the Dodd-Frank Act. The proposal was first reopened for comment last October. I blogged in February about some of the notable responses so far.

Along with yesterday’s announcement, the Commission released this DERA memo to provide supplemental baseline data and analysis – which is now posted along with all of the comments to-date. The memo:

– Discusses the increase in voluntary adoption of compensation recovery policies by issuers (noting that the increase in voluntary adoption relative to the baseline in the proposing release may reduce the anticipated benefits and mitigate the anticipated costs of the proposed rules);

– Provides estimates of the number of additional restatements that would trigger a compensation recovery analysis if, as the Commission described in the October 2021 reopening release, the rules were extended to include all required restatements made to correct an error in previously issued financial statements (noting that while there are a lot more “little r” restatements, they would be less likely to trigger a clawback, and including “little r” restatements could increase both benefits & costs); and

– Briefly discusses some potential implications for the costs and benefits of the proposed rules.

This announcement about the reopened comment period arrived only one day after the SEC celebrated a SOX 304 clawback settlement. In that action, SEC Enforcement Director Gurbir Grewal said the action should “put public company executives on notice.” This 2010 Latham memo explains the difference between these two statutes and how the rules will coexist.

The pairing of an enforcement action with the additional study of the 2015 signals that the Commission means business on clawbacks. You’ll need to revisit your policies and plans with an eye toward new rules as well as new fodder that they may provide for activists and plaintiffs. This may also add to the trend of incorporating non-financial metrics into plans.

We’ll be sharing critical guidance on all of these issues at our “Proxy Disclosure & 19th Annual Executive Compensation Conference” this October. Our session on “Clawbacks: Where Things Stand” – with Davis Polk’s Kyoko Takahashi Lin, CompensationStandards.com’s Mike Melbinger, Gibson Dunn’s Ron Mueller, and Hogan Lovells’ Martha Steinman – will give you practical action items to take in response to SEC rulemaking and enforcement activity. Here’s the full agenda for the Conferences – 18 sessions over 3 days. Our “Early Bird” rate expires tomorrow, June 10th – so make sure to register today for the best prices. Sign up online, email sales@ccrcorp.com, or call 1-800-737-1271.

– Liz Dunshee