The US Securities and Exchange Commission has proposed rules requiring executive officers to return bonuses that have been “awarded erroneously.”
Under proposed Rule 10D-1, listed companies would be required to develop and enforce recovery policies that “claw back” from current and former executive officers all incentive-based compensation they would not have received based on an the restatement, the SEC said. Recovery would be required without regard to fault.
The rules would direct national securities exchanges and associations to establish listing standards requiring the policies, and require disclosure of the listed companies’ recovery policies and actions taken under them.
“These listing standards will require executive officers to return incentive-based compensation that was not earned,” said SEC Chair Mary Jo White on July 1. “The proposed rules would result in increased accountability and greater focus on the quality of financial reporting, which will benefit investors and the markets.”
The listing standards would apply to incentive-based compensation that is tied to accounting-related metrics, stock price or total shareholder return. Recovery would affect excess incentive-based compensation received by executive officers in the three fiscal years preceding the date that a listed company is required to prepare an accounting restatement.
Each listed company would be required to file its recovery policy as an exhibit to its annual report under the Securities Exchange Act. The companies would also have to disclose recovery actions in annual reports and any proxy statement requiring executive compensation disclosure if, during the past fiscal year, a restatement necessitating recovery of excess incentive-based compensation was completed, or there was an outstanding balance of excess incentive-based compensation from a prior restatement.
With this proposal, the commission said it had completed its suggestions for all executive compensation rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The comment period for the proposed rules will be 60 days after publication in the Federal Register.
