The SEC has adopted erroneously awarded incentive-based compensation rules and published proposed listing standards.
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On Oct. 26, 2022, the Securities and Exchange Commission (SEC) adopted a final rule, “Listing Standards for Recovery of Erroneously Awarded Compensation,” required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). The SEC originally proposed the final rule in 2015 and reexposed it for public comment in 2022. In the event of a restatement of historical financial statements, erroneously awarded compensation is the amount of incentive compensation that executives would not have received if the financial statements had not included accounting errors. For erroneously awarded compensation, the final rule:
- Directs exchanges to adopt listing standards
- Requires issuers to adopt recovery policies and to pursue recovery
- Specifies certain disclosures
The final rule became effective Jan. 27, 2023. Following the effective date:
- Nasdaq and the New York Stock Exchange (NYSE) published proposed listing standards.
- Nasdaq and the NYSE amended their listing standards that specify an effective date of Oct. 2, 2023.
- The SEC approved the amended listing standards on June 9, 2023.
- Each issuer must adopt a recovery policy on or before Dec. 1, 2023.
The SEC will not expect the specified disclosures until an issuer is required to have a recovery policy under the applicable listing standards. On the final rules’ effective date, the SEC updated its Exchange Act Rules and Exchange Act Forms compliance and disclosure interpretations to address implementation questions.