Center to SEC: We Need Time to Comply with New Clawback Standards

Last week the Center, in conjunction with the Chamber of Commerce, led the submission of a stakeholder group letter to the SEC requesting that the Commission allow issuers enough time to develop and adopt their policies and procedures related to the new Dodd-Frank clawback rules. Specifically, we urged the SEC that the new listing standards for NYSE and Nasdaq should be effective no sooner than November 28, 2023, the deadline specified in the Adopting Release, and for companies to have 60 days after that date to adopt their clawback policies.  The letter was generated after concerns were raised that the SEC might approve the new listing standards much sooner than anticipated, making them effective as early as this June.  

In addition to the stakeholder group, the Society for Corporate Governance and a coalition of nearly 40 law firms sent separate letters to the SEC reiterating the same message that issuers need the maximum time allowed to comply with the new clawback listing standards. 

In the meantime, Willis Towers Watson published part three of its excellent series on how to update clawback policies going forward, including how companies should prepare in advance to facilitate their ability to claw back incentive compensation from current and former officers by considering a program of mandatory deferrals. 

One of the most serious concerns with the clawback rule is that it requires compensation to be clawed back from both current and former executive officers. One way to facilitate this would be to defer a portion of annual incentives for three years in case a clawback becomes necessary, although this would certainly be a significant change for most companies. WTW notes that revised deferral program guidelines would be necessary to comply with IRS rules, and the calculations involved (how much to defer, how much to claw back) would be complex. However, as the article points out, using mandatory deferrals as a source of clawback funds would solve the problem of having to use after-tax money to pay back earned incentives to the company, since deferrals aren’t taxed until distributed.