March 9, 2023
Clawbacks: How Do the NYSE and Nasdaq Proposals Differ?
As Liz and Dave blogged, the exchanges have posted initial rule filings to implement listing standards under the SEC’s Dodd-Frank clawback rule. On March 7, the SEC published notices to solicit comments on both the NYSE and Nasdaq proposed rules. Comments will be due 21 days from publication of the notices in the Federal Register.
Since NYSE and Nasdaq posted their rule filings, memos have been rolling in on the proposals, which we’re posting in our “Clawbacks” Practice Area. Especially for our law firm members who need to be well-versed on both proposals—and know how they differ—this Davis Polk memo provides a handy chart with a side-by-side comparison of the terms. They both closely conform to the SEC’s requirements, but as Dave noted, as usual, the process differs a bit in the case of a company that does not comply. Here’s an excerpt from the memo:
| What happens if a company does not comply? | If the NYSE determines that a company has not clawed back erroneously awarded compensation, as required by its policy, reasonably promptly after such obligation is incurred, trading in all listed securities of the company would be immediately suspended and the NYSE would immediately commence delisting procedures. The NYSE will determine whether the steps a company is taking constitute compliance with its clawback policy.
If a company fails to adopt its required clawback policy by the Effective Date, the company would be required to notify the NYSE in writing within five days. The NYSE will then promptly send written notification to the company of certain procedures, including contacting the NYSE to discuss the status of the policy and issuing a press release disclosing the occurrence of the delinquency. |
If a company does not adopt a compliant clawback policy, disclose the policy as required or comply with the policy’s clawback provisions, then it will be subject to delisting.
Nasdaq will determine whether the steps a company is taking constitute compliance with its clawback policy. The company’s obligation to claw back compensation reasonably promptly will be assessed on a holistic basis with respect to each accounting restatement prepared by the company. Nasdaq will consider whether the company is pursuing an appropriate balance of cost and speed in determining the appropriate means to seek recovery, and whether the company is securing recovery through means that are appropriate based on the particular facts and circumstances of each executive officer who owes a recoverable amount. A noncompliant company is required to submit to Nasdaq Staff a plan to regain compliance, and the administrative process for such deficiencies will follow the established pattern used for similar corporate governance deficiencies and would allow Nasdaq Staff to provide the issuer up to 180 days to cure the deficiency; thereafter, Nasdaq Staff will be required to issue a delisting letter. |
There was another regulatory development on clawbacks recently—this time from the DOJ. Here’s a summary of the DOJ’s announcement from Freshfields:
On the heels of the issuance of the Proposed Exchange Rules, last week, Deputy Attorney General Lisa Monaco and Assistant Attorney General Kenneth Polite announced the launch of a three-year DOJ pilot program on compensation incentives and clawbacks. Under the “first-ever” program, the DOJ will (1) require corporate criminal resolutions to include a directive that companies implement a compensation system that promotes compliance, and (2) reward companies that attempt in good faith to claw back payments to law-breaking executives and employees—even if those efforts are unsuccessful. Monaco said in making the announcement: “[The DOJ’s] goal is simple: to shift the burden of corporate crime away from shareholders who frequently play no role in the misconduct and onto those who are directly responsible.”
– Meredith Ervine