TheCorporateCounsel.net

The Staff also addressed in a new Exchange Act Rules Compliance and Disclosure Interpretation published on Friday the extent to which a Rule 10D-1-compliant clawback policy could reach compensation in a variety of compensation plans other than tax-qualified retirement plans. The new Compliance and Disclosure Interpretation is as follows:

Question 121H.04

Question: Because the clawback rule applies broadly to incentive-based compensation, would the rules affect compensation that is in any sort of plan, other than tax-qualified retirement plans, including long term disability, life insurance, SERPs, or any other compensation that is based on the incentive-based compensation?

Answer: The rule is intended to apply broadly. For plans that take into account incentive-based compensation, an issuer would be expected to claw back the amount contributed to the notional account based on erroneously awarded incentive-based compensation and any earnings accrued to date on that notional amount. [January 27, 2023]

This new Compliance and Disclosure Interpretation should prompt companies to take a broader look at whether incentive-based compensation is present in their various plans and whether the language of the clawback policy that is ultimately adopted should be more specific on this point.

– Dave Lynn