SEC’s Clawback Rule Could Change Compensation Structures

After years of anticipation from corporations, institutional investors and better-business advocates, the Securities and Exchange Commission adopted its final clawback rule Wednesday requiring companies to recover erroneously awarded incentive-based compensation after making a financial restatement.

The new rule will force companies to craft policies aligned with the SEC’s rule – and that also goes for the many companies that have already established clawback policies by requiring stock exchanges to add a requirement for clawback policies to their listing standards. Sources say the rule could ultimately impact compensation plan design, as well.

…”I do think this strikes an appropriate balance, and I do note and it’s no coincidence – the statistics on companies’ adopting, voluntarily, these clawback policies while this rule’s been pending shows that the salutary effect has already had some impact,” he said. “We’ve already had a lot of companies do the appropriate thing and implement their own policies to address these issues.

Indeed, over the last five years there has been a growing number of companies voluntarily adopting clawback policies, according to data provided from public company intelligence provider MyLogIQ.

In 2018, 91% of companies in the S&P 500 listed a clawback provision in their proxies or in documents on their websites such as company guidelines or bylaws, according to the data. In 2022. that number rose to 95%.

Likewise, the number of Russell 3000 companies listing clawback policies grew 3% over the five years, climbing to 73% of companies disclosing a clawback policy in 2022.