On October 26, 2022, the Securities and Exchange Commission ("SEC") adopted Rule 10D-1 entitled "Listing Standards for Recovery of Erroneously Awarded Compensation."1 The rule has two main requirements. First, it directs national securities exchanges to require listed issuers to develop and implement written policies to claw back incentive-based executive compensation if the issuer is later required to issue an accounting restatement. The policies must comply with the elements set out in the final rule. Second, the rule directs exchanges to require that issuers publicly disclose their written policies.2

The final rule creates important new requirements for public companies, with significant consequences for noncompliance. An issuer that fails to adopt, comply with, and disclose a clawback policy will be subject to delisting from the exchange.3 The final rule also follows recent enforcement efforts to deter corporate misconduct by clawing back executive compensation.4 Rule 10D-1 extends those efforts by increasing (1) the likelihood that a company will have to claw back incentive-based compensation and (2) the universe of individuals who may be subject to a clawback. The rule becomes effective on January 27, 2023.


Since 2002, executives have been at risk of being required to reimburse their companies for certain incentive-based compensation when there is an accounting restatement. Under Section 304 of the Sarbanes-Oxley Act of 2002 ("SOX 304"), if a public company issues an accounting restatement as a result of misconduct, the SEC may seek to require the CEO and CFO to reimburse the company for incentive-based compensation they received during the 12-month period following the misstated financial statement, regardless of whether they were involved in the misconduct.5 The SEC has brought several enforcement actions pursuant to SOX 304.6 The adoption of Rule 10D-1 does not affect the requirements of SOX 304, and CEOs and CFOs remain subject to that statute.

Eight years after the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010 was passed, requiring the SEC to adopt rules requiring public companies to recover incentive-based compensation from executive officers when a public company files an accounting restatement.7 Twelve years after Dodd-Frank, the SEC adopted Rule 10D-1 pursuant to this statutory mandate. As described below, when compared to SOX 304, Rule 10D-1 expands the scope of potential clawbacks against executives in significant ways.8

Key Parts of Rule 10D-1

Rule 10D-1 has four key parts.

First, Rule 10D-1's clawback requirement is triggered by an accounting restatement. In the final version of the rule, the SEC broadened the restatement trigger to include both "Big R" restatements and "little r" restatements.9 A "Big R" restatement is a restatement that corrects errors that are material to previously issued financial statements and, if as a result of misconduct, triggers SOX 304. An issuer must file an Item 4.02 Current Report on Form 8-K in connection with a "Big R" restatement. A "little r" restatement corrects errors that are not material to previously issued financial statements, but would result in a material misstatement if left uncorrected in a current report. A "little r" restatement generally does not trigger an Item 4.02 Form 8-K. According to the SEC's adopting release, both types of restatements fall within the scope of the statute because they both result from material misstatements that either already exist or would exist in the current period.

In contrast, so-called "out-of-period adjustments"—when the error is immaterial to the previously issued financial statements, and the correction of the error is also immaterial to the current period—do not trigger Rule 10D1's clawback requirements because such adjustments are not considered "accounting restatements."10

Because Rule 10D-1's clawback provisions depend on an issuer determining that errors in its financial statements are "material," the SEC recognized the risk that issuers could avoid clawing back executive compensation by manipulating the materiality analysis of an error. The SEC warned of the "potential serious consequences," including an SEC enforcement action, associated with mischaracterizing material accounting errors as immaterial.11

Second, Rule 10D-1 requires issuers to claw back excess incentive-based compensation. The rule defines incentive-based compensation as "any compensation that is granted, earned, or vested based wholly or in part upon the attainment of any financial reporting measure,"12 such as compensation based on revenue, net income, profitability, stock price, or total shareholder return.13 Examples of incentive-based compensation include non-equity incentive plan awards that are based on satisfying a financial reporting measure performance goal and bonuses paid from a bonus pool the size of which is determined based on satisfying a financial reporting measure performance goal.14 Non-incentive-based compensation, such as regular salary, discretionary bonuses not tied to financial performance, and stock options and other equity awards that vest solely due to continued employment are not subject to being clawed back under Rule 10D-1.15

Rule 10D-1 does not require that all incentive-based compensation be clawed back in the event of a restatement. The rule requires issuers to claw back only excess compensation. The excess compensation is "the amount of incentive-based compensation received by the executive officer or former executive officer that exceeds the amount of incentive-based compensation that otherwise would have been received had it been determined based on the accounting restatement."16 In other words, if an executive is entitled to receive $150,000 in incentive-based compensation based on the financial results reflected in a restated financial statement, but the executive previously received $200,000 based on the misstated financial statement, the executive must return the $50,000 excess but may retain the rest. Importantly, the final rule prohibits issuers from indemnifying executives against the loss of compensation resulting from Rule 10D-1.17 The SEC's adopting release also states that issuers are prohibited from paying or reimbursing executives for insurance policies to cover potential clawback obligations.18

Rule 10D-1's clawback requirements are subject to three impracticability exceptions. First, an issuer is not required to claw back compensation if the direct expenses paid to third parties to enforce the clawback policy would exceed the amount to be recovered. Second, an issuer is not required to claw back compensation if it would violate the law of the issuer's home country. Third, an issuer is not required to claw back compensation if doing so would cause a tax-qualified retirement plan to fail to meet the requirements of the Internal Revenue Code.19

Third, Rule 10D-1 applies to a broad category of executive officers. Rule 10D-1 defines "executive officer" as "the issuer's president, principal financial officer, principal accounting officer . . . , any vice-president in charge of a principal business unit, division, or function . . . , any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer."20 In this regard, Rule 10D-1 is significantly broader than SOX 304, which only applies to the CEO and CFO.

Section 10D has no scienter requirement,21 and, according to the SEC's adopting release, Rule 10D-1 requires issuers to claw back incentive-based compensation from officers even if they did not directly contribute to the error.22 Moreover, Rule 10D-1 requires issuers to claw back incentive-based compensation no matter the reason for the restatement. Here again, Rule 10D-1 is broader than SOX 304, which applies only to accounting restatements issued "as a result of misconduct." The breadth of Rule 10D-1 reflects one of the SEC's key interpretations of the statute under which the SEC adopted the rule: "Section 10D was established not to punish wrongdoing, but to require executive officers to return monies that rightfully belong to the issuer and its shareholders."23

Fourth, Rule 10D-1 has a three-year look back period. Rule 10D-1 requires the recovery of compensation erroneously awarded during the three-year period preceding the date on which the issuer is required to prepare the accounting restatement. That date is calculated as the earlier of: (1) the date the issuer's board of directors concludes, or reasonably should have concluded, that the issuer is required to prepare an accounting restatement; and (2) the date a court, regulator, or other legally authorized body directs the issuer to prepare an accounting restatement.24 This is significantly broader than SOX 304, which only requires the CEO and CFO to reimburse the company for incentive-based compensation received during the 12-month period following the filing of each misstated financial statement.25


According to SEC Chair Gary Gensler, Rule 10D-1 "will strengthen the transparency and quality of corporate financial statements, investor confidence in those statements, and the accountability of corporate executives to investors."26 In combination with recent SEC enforcement actions and Department of Justice guidance, the rule reinforces recent regulatory and law enforcement emphasis on using executive compensation to promote desirable corporate behavior.

Rule 10D-1 becomes effective on January 27, 2023. Exchanges must propose listing standards by February 26, 2023, and the listing standards must be effective no later than November 28, 2023. Issuers listed on the exchanges will have 60 days from the effective date of the listing standards to adopt the required clawback policy.


1. See Listing Standards for Recovery of Erroneously Awarded Compensation, 87 Fed. Reg. 73076 (Nov. 28, 2022), https://www.govinfo.gov/content/pkg/FR-2022-11-28/pdf/2022-23757.pdf.

2. The SEC also adopted amendments to its disclosure rules in Items 402 and 601 of Regulation S-K requiring issuers to file their policies as exhibits to their annual reports and make certain other disclosures in the event of an accounting statement about how the policies have been applied. Id.

3. 17 C.F.R. § 240.10D-1(a)(1); see also 87 Fed. Reg. at 73080.

4. In 2022, the SEC brought several enforcement actions to compel reimbursement pursuant to Section 304. See, e.g., In the Matter of Stephen G. Waldis, Exchange Act Release No. 95054, 2022 WL 2063304 (June 7, 2022), https://www.sec.gov/litigation/admin/2022/34-95054.pdf; In the Matter of James H. Roberts, Exchange Act Release No. 95609, 2022 WL 3703829 (Aug. 25, 2022), https://www.sec.gov/litigation/admin/2022/34-95609.pdf. In September 2022, the Deputy Attorney General of the Department of Justice instructed the Criminal Division to promulgate guidance by the end of 2022 to incentivize companies to develop and apply compensation clawback policies. See Memorandum from Deputy Attorney General Lisa O. Monaco, Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group, (Sept. 15, 2022), https://www.justice.gov/opa/speech/file/1535301/download.

5. 15 U.S.C. § 7243(a), https://www.govinfo.gov/content/pkg/USCODE-2011-title15/pdf/USCODE-2011-title15-chap98- subchapIII-sec7243.pdf.

6. See supra note 3; see also SEC v. Jenkins, 718 F. Supp. 2d 1070 (D. Ariz. 2010). It is too early to know whether Rule 10D-1 will affect how the SEC pursues enforcement actions relying on SOX 304, which remains in effect. However, even after Rule 10D-1 was adopted, the SEC Director of Enforcement emphasized the use of SOX 304 in enforcement actions. See Gurbir Grewal, Director of Division of Enforcement, Sec. Exch. Comm'n, Remarks at Securities Enforcement Forum (Nov. 15, 2022), available at https://www.sec.gov/news/speech/grewal-speech-securities-enforcement-forum-111522#_ftnref10.

7. See 87 Fed. Reg. at 73076-77 (citing 15 U.S.C. § 78j-4(a)-(b)).

8. To the extent that Rule 10D-1 would require a company to recover incentive-based compensation that the company recovers under SOX 304, the amount recovered pursuant to SOX 304 can be credited to the amount required to be recovered under Rule 10D-1. See 87 Fed. Reg. at 73098-99.

9. See 17 C.F.R. § 240.10D-1(b)(1); see also 87 Fed. Reg. at 73085-86.

10. See 87 Fed. Reg. at 73085.

11. See 87 Fed. Reg. at 73086.

12. 17 C.F.R. § 240.10D-1(d) (definition of "incentive-based compensation); see also 87 Fed. Reg. at 73092-93.

13. See 87 Fed. Reg. at 73093.

14. For additional examples, see 87 Fed. Reg. at 73094.

15. See id.

16. See 17 C.F.R. § 240.10D-1(b)(1)(iii); see also 87 Fed. Reg. at 73092, 73097-99.

17. See 17 C.F.R. § 240.10D-1(b)(v).

18. See 87 Fed. Reg. at 73110.

19. See 17 C.F.R. § 240.10D-1(b)(iv)(A)-(C).

20. See 17 C.F.R. § 240.10D-1(d) (definition of "executive officer."); see also 87 Fed. Reg. at 73090-91.

21. See 87 Fed. Reg. at 73090.

22. See 87 Fed. Reg. at 73077.

23. 87 Fed. Reg. at 73091.

24. 17 C.F.R. § 240.10D-1(b)(1)(ii)(A)-(B); see also 87 Fed. Reg. at 73088.

25. See 15 U.S.C. § 7243(a)(1)-(2).

26. Press Release: Sec. Exch. Comm'n, SEC Adopts Compensation Recovery Listing Standards and Disclosure Rules, Release No. 2022-192, 2022 WL 14782588 (Oct. 26, 2022), available at https://www.sec.gov/news/press-release/2022-192.

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