Last week, the U.S. Securities and Exchange Commission (SEC) adopted the long-debated rule that will require listed companies to adopt policies requiring the recovery (or clawback) of erroneously awarded incentive compensation from current or former executive officers who received such compensation during the three fiscal years preceding the date on which the listed company is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws. The final rules direct the national securities exchanges to establish listing standards requiring companies to develop, implement and comply with a compensation clawback policy. Issuers that do not adopt and comply with their compensation recovery policy would be subject to delisting. The final rules leave little discretion to the board of directors of the company, apply irrespective of misconduct, and are triggered by both “Big R” and “little r” restatements. The requirements apply to all listed companies, even foreign private issuers, controlled companies, and debt-only issuers. The rules also require listed issuers to provide disclosure about such policies and how they are being implemented. In this Alert we summarize the key elements of the rules, and offer considerations on “What to do now?”

View this Governance & Securities Alert.