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SEC adopts executive incentive compensation clawback rules

On October 26, the SEC adopted final rules regarding the recovery of erroneously awarded incentive compensation from current and former executive officers.

The final rules direct US securities exchanges to adopt standards to require most listed issuers to develop and implement a policy providing for the recovery of incentive compensation received by current and former executive officers (over a three-year look-back period) in the event of a required accounting restatement when that compensation was based on erroneously reported financial information. New Exchange Act Rule 10D-1 sets forth the detailed requirements that must be included in the issuer’s clawback policy, including a list of people that would be considered executive officers and guidance relating to the types of accounting restatements that would trigger the recovery requirements (including some accounting restatements where no prior period financial statements were materially misstated).

The exchanges must file proposed listing standards to implement the SEC’s directive no later than 90 days after the SEC’s final rules are published in the Federal Register, and those listing standards must be effective no later than one year following that publication date. Affected issuers will be required to adopt a recovery policy no later than 60 days after the listing standards become effective.

Stay tuned for our In brief with more details regarding the final rules.

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