The U.S. Securities and Exchange Commission (SEC) in November 2022 finally adopted long-anticipated compensation recovery rules applicable to incentive compensation paid to executives by publicly traded companies (SEC Rule). The SEC Rule required national securities exchanges to propose and adopt new listing standards requiring listed companies to adopt policies mandating the recovery of erroneously paid incentive compensation. Shortly after the SEC Rule's release, Holland & Knight provided a detailed analysis, including a discussion of the types of compensation covered, as well as the applicable reporting and disclosure requirements.

On Feb. 22, 2023, the New York Stock Exchange (NYSE) and Nasdaq Stock Market each released their proposed listing standards in response to the SEC Rule (Listing Standards). Both sets of Listing Standards closely track the reporting and disclosure requirements in the SEC Rule.

Compliance Deadlines

Both of the Listing Standards are subject to a 21-day comment period once they are published in the Federal Register. After the conclusion of the 21-day comment period, the SEC must approve the Listing Standards. Exchanges must make their Listing Standards effective no later than Nov. 28, 2023 (Effective Date). Companies will be required to file their compliant clawback policy within 60 days of the Effective Date, which at the latest will be Jan. 27, 2024.

Key Next Steps

Though the Listing Standards may be revised based on public comments or input from the SEC, substantial changes are not expected because the Listing Standards largely mirror the SEC Rule. Accordingly, publicly listed companies should begin to take steps to ensure compliance with the new rules prior to the compliance deadline:

  • Discuss New Rules with Key Stakeholders. Companies should take steps to discuss the new Listing Standards with their boards of directors and compensation committees. The financial and audit divisions of companies should also develop internal escalation procedures when they identify a clawback-triggering event.
  • Review Current Clawback Policies. A critical compliance step will be reviewing current clawback policies and determining whether the current policy should be revised or if a new policy should be adopted. Companies should consider the scope of the Listing Standards and determine which compensation arrangements could be subject to clawback.
  • Be Mindful of Incentives and Taxes. Given the retroactive reach of the Listing Standards (grants that encompass any fiscal period on or after the Effective Date will be subject to clawbacks), companies should consider whether it would be worthwhile to adjust performance metrics for incentive compensation to ease the burden of calculating compensation that may be subject to clawback.

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