October 27, 2022

SEC Adopts the Dodd-Frank Era Clawback Rules

Yesterday, the SEC adopted the clawback rules contemplated by Section 10D of the Exchange Act, which was added over a dozen years ago by the Dodd-Frank Act. Not surprisingly, the vote on the final rulemaking action was 3-2. As this Fact Sheet notes, the final rules ended up being broader than originally proposed, as foreshadowed by the reopening of the comment period in October 2021 and June 2022. When all is said and done with the implementation of the rules – which will require further action by the stock exchanges – most exchange-listed companies will have to adopt and comply with a clawback policy that conforms to these new rules, and will also have to provide disclosure in proxy and information statements and annual reports about the policies and how they are being implemented. A listed company will be subject to delisting if it does not adopt and comply with a clawback policy that meets the requirements of the to-be-adopted listing standards.

The clawback policy contemplated by the final rules is, in all likelihood, going to differ significantly from the clawback policies that most companies have adopted over the course of the past two decades. While clawback policies tend to focus on recovering incentive compensation that was based on misstated financial statements arising from fraud where the executive from whom the compensation is being recovered had some culpability in making the misstatements, the listing standards that the stock exchanges are directed to adopt will call for a clawback policy that requires no culpability on the part of current or former executives, the recovery of incentive compensation received during the three-year period preceding the date the company is required to prepare the accounting restatement, and recovery will be triggered by a broad range of accounting restatements, including the now quite popular “little ‘r’ restatement.”

The amount of recoverable compensation will be the amount of incentive-based compensation received by the executive officer or former executive officer that exceeds the amount of incentive-based compensation that otherwise would have been received had it been determined based on the restated financial statements. The SEC’s rules contemplate that the listing standards can provide for very limited impracticability exceptions.

Of course new listing standards are not enough, so the SEC will require enhanced disclosure about the compensation recovery policy (to be tagged using inline XBRL), as a well as a requirement to file the policy as an exhibit to the annual report and two new check boxes on the cover of Form 10-K, with one indicating whether the financial statements included in the filing reflects the correction of an error to previously issued financial statements, and another indicating whether any of those error corrections are restatements that required a compensation recovery analysis.

For a more information about the new clawback rules, stay tuned to our continuing coverage over on If you do not have access to all of the great resources that are available on, now might be a good time to think about becoming a member of that site. You know the drill by now – sign up today online, email or call 1-800-737-1271.

– Dave Lynn