On July 1, 2015, following a 3-2 vote, the U.S. Securities and
Exchange Commission (SEC) announced proposed rules that would
implement the incentive-based compensation recovery (clawback)
provisions of the Dodd-Frank
Wall Street Reform and Consumer Protection Act. With
this announcement, the SEC has completed its task of producing
proposals on all executive compensation rules required by
The proposals would significantly expand the range of situations
in which such clawbacks would be required. Under existing rules,
clawbacks are triggered only in a narrow set of circumstances
involving misconduct that results in the restatement of a
company's financial statements. Under this proposal, clawbacks
would apply to all manner of accounting restatements due to
material non-compliance of the company, including non-compliance
that is the result of erroneous data.
Under the proposed rules, companies listed on U.S. stock
exchanges, including foreign private issuers such as Canadian
companies using the multijurisdictional disclosure system (MJDS),
would be required to claw back top executives' incentive pay if
their financial statements were later found to be non-compliant
with a financial reporting requirement under U.S. securities laws.
This would apply to public companies of all sizes and to any
executive officer who makes policy decisions and who has received
incentive compensation, including stock options. Significantly, it
would apply without regard to the executive officer's
responsibility for preparing the company's financial
statements. Previously, the rules applied only to CEOs and
Under the proposals, companies would have to claw back any
amount of incentive compensation that exceeds what the executive
officer would have received based on the accounting restatement.
Companies would also be required to disclose the names of
executives who are more than 180 days past due on their paybacks,
as well as the names of executives who are not targeted for
clawbacks. However, the companies would only be required to
disclose an aggregate number for clawbacks that are recovered,
without naming individuals.
Companies that do not adopt such clawback policies could have
their shares delisted by stock exchanges. Companies will have 60
days to comment on the proposals.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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