SEC Signals When It May Act on Clawback Rule Listing Standards: What Public Companies Need to Know

This week the Securities and Exchange Commission (SEC) extended its deadline for when the SEC must take action on the proposed listing standards to implement the executive compensation recovery rules (the Clawback Rules) to June 11, 2023.

Below we cover key takeaways and what actions exchange-listed companies should take now.

Key Takeaways:

• The SEC has extended its deadline for when the SEC must take action on the NYSE and Nasdaq proposed Clawback Rule listing standards to June 11, 2023.
• If the listing standards are deemed effective by the SEC on June 11, 2023, it will start a 60 calendar-day period (ending August 10, 2023) for exchange-listed companies to adopt a compliant clawback policy.

Exchange-listed companies should continue to brief key stakeholders about the final Clawback Rules, prepare a compliant clawback policy (including obtaining written stakeholder consent to the policy) and plan for adopting the policy shortly after the listing standards become effective.

Background:

Last year, the SEC adopted the long-awaited Clawback Rules. The Clawback Rules instructed national securities exchanges (such as the NYSE and Nasdaq) to propose new listing standards requiring that exchange-listed companies develop and implement a policy providing for the recovery, in the event of a required accounting restatement, of incentive-based compensation received by executive officers where that compensation is based on erroneously reported financial information (a Clawback Policy).

In February 2023, both the NYSE and Nasdaq released their proposed listing standards, initiating the process for SEC review and approval.

When will the listing standards become effective?

The listing standards for each exchange will become effective on the date the SEC approves them (the Effective Date). For both the NYSE- and Nasdaq-proposed listing standards, the SEC has now set June 11, 2023, as the date by which it “shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed [listing standards].”^[1] Once effective, exchange-listed companies will have 60 calendar days to adopt a compliant Clawback Policy.

However, through its latest actions, the SEC did not address, and therefore has not ruled out, the possibility of an Effective Date of November 28, 2023, which was previously established as the latest possible Effective Date. Additionally, a series of public comment letters have been submitted encouraging the SEC not to approve the effectiveness of the listing standards until the November 28, 2023, deadline.^[2] Accordingly, it remains possible that the SEC or the exchanges will take action prior to June 11, 2023, that results in a later Effective Date.

What should the NYSE- or Nasdaq-listed companies do now?

Under the final Clawback Rules, each listed company will be required to:

• adopt a Clawback Policy no later than 60 calendar days following the Effective Date;
• comply with the Clawback Policy on or after the Effective Date; and
• provide the disclosures required by the Clawback Rules on or after the Effective Date.

With the SEC slating June 11, 2023, as its deadline to approve the proposed listing standards, listed companies are advised to continue to:

• brief key stakeholders, such as Compensation Committee members, Board members, executive officers and finance personnel, about the final Clawback Rules, related disclosure obligations and consequences of noncompliance;
• prepare a compliant Clawback Policy; and
• establish a plan to adopt such policy (including obtaining consent from executive officers to such policy) and implement related disclosure controls and procedures shortly after the listing standards become effective.

Where can I find Additional Information?

For additional details about the final Clawback Rules and the proposed listing standards, see our previous client alerts: What You Need to Know About the SEC's Final Clawback Rules and NYSE and Nasdaq Propose Clawback Rule Listing Standards: What Public Companies Need to Know.

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We will continue to monitor developments under these new standards. Please contact one of the listed authors of this article, or your regular Orrick contact, for assistance with adopting a compliant Clawback Policy or revising any existing clawback policies to comply with the new Clawback Rules.