TheCorporateCounsel.net

Yesterday, the SEC announced that it is reopening the comment period again on the Dodd-Frank Act mandated compensation recovery rulemaking – an unusual second reopening after the SEC reopened the comment period on that rulemaking just last October. The proposed rules, which would direct the exchanges to adopt listing standards mandating the adoption of compensation recovery policies by listed companies, were originally proposed by the Commission in 2015.

The announcement and reopening release were accompanied by a memorandum prepared by DERA Staff. Specifically, the DERA memo discusses the increase in voluntary adoption of compensation recovery policies by issuers; provides estimates of the number of additional restatements that would trigger a compensation recovery analysis if the rules were included all required restatements made to correct an error in previously issued financial statements; and discusses some potential implications for the costs and benefits of the proposed rules.

One of the big issues raised by the last reopening was the possibility of including “little r” restatements as a trigger for clawing back compensation. In the memo, DERA estimates that that “little r” restatements may account for roughly three times as many restatements as “Big R” restatements in 2021, after excluding restatements by SPACs. The memo notes that the potential inclusion of “little r” restatements may increase both the benefits and the costs associated with the proposed rules.

The reopened comment period will run for 30 days following publication of the reopening release in the Federal Register.

– Dave Lynn