Update on SEC Clawbacks and Pay Versus Performance Rules

The SEC has published new Compliance and Disclosure Interpretations (CDIs) on clawback rules, as well as promising more on the new Pay Versus Performance rules. The clarifications on clawbacks include the following:

• Checkbox. The SEC confirmed that although the 10-K and other forms will include a checkbox regarding whether financials reflect the correction of errors that resulted in a clawback, companies aren’t expected to disclose this until they are actually required to revise their clawback policies (later this year or next year once listing standards are effective).
  
  
• Covered Executives. The CDIs clarified how foreign private issuers should define “senior executives” versus “Named Executive Officers.”
  
  
• Covered Incentives. The SEC specified that the clawback rules should “apply broadly” to incentive-based compensation, potentially including plans such as long-term disability, life insurance, or SERPs to the extent they take into consideration incentive-based compensation.

On the much more eagerly-awaited CDIs for Pay Versus Performance, Dave Lynn of the Corporate Counsel blog reported that at a recent conference, newly minted Director of Corporation Finance Erik Gerding noted the staff is planning to issue them “soon.” A number of questions have been posed to the staff, including clarifications on peer groups, valuation methods, footnotes, etc., so the CDIs cannot come a moment too soon. For now, make sure to let your Compensation Committee know that disclosures may change if the CDIs provide further guidance.