Margaret Engel is a founding partner and Bonnie Schindler is principal at Compensation Advisory Partners. This post is based on their CAP memorandum. Related research from the Program on Corporate Governance includes Rationalizing the Dodd-Frank Clawback (discussed on the Forum here) by Jesse M. Fried.
On February 22, 2023, the New York Stock Exchange (NYSE) and Nasdaq Stock Market released rules implementing the Securities and Exchange Commission’s (SEC’s) Dodd-Frank clawback rules. The SEC rules for Section 954 of the Dodd-Frank Act, “Listing Standards for Recovery of Erroneously Awarded Compensation,” were issued in October 2022 and directed the exchanges to adopt clawback policies for listed companies.
Clawback policies require companies to recover executive incentive compensation deemed to have been paid erroneously because of subsequent accounting restatements. While more than 80% to 90% of mid- and large-cap companies have clawback policies in place, the new compensation recovery rules are more stringent than what most companies currently have in place.
The NYSE and Nasdaq rules both closely follow the SEC’s final rule. Noncompliance with the stock exchange rules can result in a company being delisted.
What is the timing for compliance?
Comment Period: The NYSE and Nasdaq rules will be published in the Federal Register and will have a 21-day comment period.
Approval: After the comment period, the SEC must approve the listing standards.