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One of the topics that we will discuss later today on our very timely CompensationStandards.com webcast is all of the many considerations that go into adopting or amending your clawback policy to be compliant with the requirements of the NYSE and Nasdaq that will be effective on October 2, 2023. Companies will have until December 1, 2023 to adopt compliant clawback policies. While the requirements for the policy that are dictated by SEC Rule 10D-1 are very specific (and restrictive), the actual implementation of clawback provisions in response to those requirements is proving to be somewhat complex for listed companies.

This new alert from Gunster highlights the many decisions that companies will have to make as they seek to adopt or update clawback policies in light of the new listing requirements. The alert notes the following regarding updates to existing policies:

The new rules are complex and require a listed company to take a number of steps in order to amend existing clawback policies or provisions (contained in compensation plans or otherwise) or, if none, to adopt and implement one or more compliant policies in a timely manner. The following is a summary of the key steps to be taken and decisions to be made.

• If your company has an existing clawback policy, you will need to compare the existing policy to the requirements of the new rules, including any additional requirements in the applicable listing standards. For example:
  • Existing policies may apply to a narrower or broader employee population than is required under the new rules, which applies to current and former Section 16 officers.
  • Existing policies may be tied to a specific type of restatement or may apply only in cases of misconduct. The new rules require recoupment for two types of restatements and apply whether or not the restatements are the result of misconduct.
  • Existing policies may apply to different forms of compensation. The new rules apply to all “incentive-based compensation,” which is broadly defined as any compensation that is granted, earned, or vested based wholly or in part upon the attainment of any “financial reporting measure.”
  • Existing policies may be discretionary, whereas under the new rules clawbacks are mandatory except in three limited circumstances.

The alert goes on to highlight considerations with respect to: maintaining multiple clawback policies; the treatment of existing clawback provisions (including provisions in plans, specific grants under plans, employment agreements, or otherwise); the incorporation of the clawback policy in awards going forward; the approach to enforcing the clawback policy; the determination of executive officer status; and ongoing disclosure obligations. Needless to say, there is a lot of work required to finalize a compliant clawback policy that works within a company’s existing plans and programs.

– Dave Lynn