SEC proposes clawback rules

The SEC proposed new rules that would require executive officers of listed companies to pay back incentive-based compensation that they were awarded erroneously.

Proposed Rule 10D-1 would require listed companies to develop and enforce recovery policies in the event of accounting restatements. The proposal would affect current and former executive officers who receive incentive compensation that, based on the restatement, they would not have received.

Under the proposal, listed companies’ policies would “claw back” that unearned incentive compensation from current and former executive officers. Recovery would be required without regard to fault. Companies would be required to disclose the recovery policies and their actions under these policies.

“The proposed rules would result in increased accountability and greater focus on the quality of financial reporting, which will benefit investors and the markets,” SEC Chair Mary Jo White said in a news release.

The SEC now has completed proposals on all executive compensation rules required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203.

The clawback proposal would apply to incentive-based compensation that is tied to accounting-related metrics, stock price, or total shareholder return. Recovery would apply to excess incentive-based compensation received by executive officers in the three fiscal years preceding the date a listed company is required to prepare an accounting restatement.

Comments are due 60 days after the proposed rules are published in the Federal Register.