August 8, 2023
Clawbacks: Effective Date Questions
As we approach the effective date of the exchanges’ clawback listing standards, questions are rolling in about timing and compliance dates on our “Q&A Forum.” With respect to the exhibit filing requirement, we received this question (#1472):
As you indicate, the listing standards related to the new clawback rules become effective on October 2, 2023 and companies then have 60 days (December 1, 2023) to adopt a compliant policy. The final clawback rules include new Item 601(b)(97) which requires the filing of the clawback policy with the 10-K. The final clawback rules state that you have to comply with the disclosures requirements (e.g., filing the clawback policy as a 10-K exhibit) “in the applicable Commission filings required on or after the effective date of the listing standard” (i.e. on or after Oct. 2, 2023). My question is whether 9/30 filers will need to file the clawback policy with their Form 10-K filings many of which will be prior to 12/1? Do you agree that if an issuer adopts the clawback policy prior to filing the Form 10-K that it should include Exhibit 97 with the adopted clawback policy even if prior to 12/1?
John responded:
I think including the policy as an exhibit to the 10-K would be prudent, particularly in light of footnote 47 to the SEC’s approval of the Nasdaq listing standards:
“Listed issuers will need to have their recovery policy in place no later than 60 days following the effective date of October 2, 2023, which would be more than a year after publication of Rule 10D-1 in the Federal Register. Listed issuers will also have to comply with their recovery policy for all incentive-based compensation received by executive officers on or after the effective date of October 2, 2023, and provide the required disclosures in the applicable Commission filings on or after the effective date of October 2, 2023.”
The same language also appears in footnote 51 of the SEC’s approval of the NYSE listing standards.
With respect to incentive compensation granted prior to the effective date of the listing standards, we received this question (#1473):
Is it correct that the new rules apply to amounts granted or awarded prior to the Oct. 2, 2023 effective date if the financial reporting measure is attained after the effective date but during the 3-year lookback period?
And I responded:
Yes. See pages 122-125 of the final rule release.
– Meredith Ervine