SEC to Vote July 1 on Proposed Rule Requiring No Fault Clawbacks

June 26, 2015

Next week, the U.S. Securities and Exchange Commission will meet to consider proposed rules implementing the Dodd-Frank clawback requirement, as SEC Chair Mary Jo White predicts "near-term" action on pay ratio and restrictions on financial services incentive compensation.  The 2010 Dodd-Frank Act requires the SEC to develop rules requiring all public companies to implement a clawback policy that applies to all current and former executive officers in the event of a material restatement of financial information.  The policy must provide for recoupment of any incentive compensation, including stock options, which would not have been received in the three years prior to the restatement had the financials been correct.  Since the Dodd-Frank Act was passed, the Association's Center On Executive Compensation has filed comments with the SEC and held meetings with its staff identifying some of the key decisions and practical issues that the proposed rule will have to address, including the mechanics of recouping amounts that are clawed back, in light of how incentive plans are structured.  The SEC's rulemaking on clawbacks is only one step in the process.  After the rules are finalized, the stock and commodities exchanges must implement them as listing standards.  Chair White's comments on the forthcoming regulatory agenda came in a speech this week in which she focused on facilitating greater dialog between companies and shareholders.