SEC Reopens Public Comments for Unfinished Clawback Rules

Published on: October 15, 2021

Topics: Executive Pay Legislation and Regulation, Executive Pay Plan Design

With calls for stricter rules on clawbacks increasing, the SEC announced it is reopening the public comment period on the proposed Dodd-Frank clawback rules for 30 days.  The announcement follows SEC Chairman Gensler’s recently-announced directive to complete the unfinished rules.

The SEC originally proposed rules in July 2015 that mandated the following:

• Boards must claw back incentive payments from the previous three years if those incentives were paid based on subsequently restated financial results,
  
  
• Clawbacks would not be conditioned on fraud or misconduct, and
  
  
• Boards would have some discretion into how the funds are recouped. 

Calls for stricter rules on clawbacks have only increased:  Gensler released a statement expressing his support for reopening the comment period and finalizing this rule.  Importantly, his statement does not include language regarding clawbacks in the face of reputational harm without a financial restatement.  This is the primary difference in terms of how companies are using clawbacks now versus in 2015.  Although the practice is slowly evolving, the SEC is not expected to expand its proposed rule to mandate that clawback policies include provisions for reputational harm.

In other SEC news, Commissioner Elad Roisman gave a speech to the National Association of Corporate Directors noting he believes a climate disclosure rule will arrive before 2022 and will feature items mentioned by Chair Gensler in his speeches, including Scope 1 and 2 emissions.  However, Commissioner Roisman does not believe the disclosures will be intended to replace existing frameworks such as the Sustainability Accounting Standards Board or the Task Force on Climate-related Financial Disclosures.

Outlook:  As the SEC continues its rapid regulatory pace, the next few months could see a flurry of proposed rules, covering clawbacks, human capital metrics, climate risk, and 10b5-1 plans.