As we noted in our December 2022 client alert on the US SEC’s new clawback rules, full compliance by companies listed in the US was expected to be required by the end of this year or early 2024.
However, as the rule-making process has unfolded, full compliance is on a shorter timeline with a current earliest compliance date of August 8, 2023. (The effective date of the relevant listing standards is June 11, and companies have 60 days from such effective date to adopt their policies, but representatives from the SEC have indicated that we should consider June 9 as the effective date because the SEC would not likely act on the weekend.)
On April 3, 2023, a group of law firms, including Freshfields, wrote a letter to the SEC, outlining the complexity around compliance, including for foreign private issuers, and urging the regulator not to approve the adoption and effectiveness of the new listing standards earlier than November 28, 2023, with compliance required January 27, 2024. However, it seems unlikely that the SEC will accept this request, so our recommendation is that issuers prepare for the August 8, 2023 compliance date by adopting their final compliant clawback policies by that date. If there is any further delay to the implementation deadline, we will alert you.
To recap, the SEC’s final clawback rule directed the US exchanges to adopt listing standards requiring all US-listed companies to implement the clawback rule and what is happening now is the regulatory approval process to put in place the new listing standards proposed by the exchanges. Broadly, these listing standards must require all US-listed companies:
- To adopt and comply with a written policy to claw back excess incentive pay (ie based on financial reporting measures) from executive officers where the company restates its results (“Big R” or “little r” restatements) due to its material noncompliance with any financial reporting requirements under US securities laws
- To disclose the policy and to file it as an exhibit to its annual report
- To include various other disclosures in the event that a clawback is triggered under the policy.
Failure to comply could result in the company being delisted. For more detail, see our recent blog posts here and here. You can see the proposed clawback listing standards for the NYSE Listed Company Manual here and for The Nasdaq Stock Market LLC Rules here.
If you would like to discuss this development, please reach out to your usual Freshfields contact.