'Clawing Back' Executive Compensation: Companies Listed on the NYSE and Nasdaq Have Until December 1 to Adopt a Compensation Recovery Policy

Companies listed on the New York Stock Exchange (NYSE) and Nasdaq Stock Market (Nasdaq) have until December 1 to adopt compliant clawback policies now that the SEC has approved listing standards the exchanges proposed. The SEC adopted clawback rules last year instructing securities exchanges to propose the standards. The standards require exchange-listed companies to develop and implement policies to recover erroneously awarded incentive-based compensation received by executive officers.

What’s New?

The SEC has approved the listing standards the NYSE and Nasdaq proposed. Relevant deadlines for NYSE- and Nasdaq-listed companies include:

• Companies must adopt a compliant clawback policy by December 1, 2023;
• All incentive-based compensation for executive officers must comply with the policy if “received” following October 1, 2023; and
• The required disclosures are mandatory following October 1, 2023.

What Happens If a Company Fails to Adopt a Compliant Policy by December 1?

An NYSE-listed company that fails to meet the deadline would need to:

• Notify the NYSE in writing within five days after December 1, 2023.
• Discuss the status of the delayed policy with the NYSE.
• Issue a press release with details regarding the noncompliance, including the reason for it and, if known, the anticipated date of cure.

The NYSE may then provide a cure period for achieving compliance.

If Nasdaq determines that a listed company has not adopted a compliant clawback policy by the deadline, the company will receive a notification from Nasdaq and be required to submit a plan to regain compliance. The process for addressing such deficiencies will follow the standard process used for similar corporate governance issues by Nasdaq, which includes a public announcement of the deficiency by a Form 8-K and a cure period for achieving compliance.

When Must a Company Publicly File Its Clawback Policy?

Listed companies will need to file their adopted clawback policies as an exhibit with the first annual report filed following October 1, 2023. For a calendar year-end company, this means the adopted policy will be filed with the annual report on Form 10-K for the year ended December 31, 2023.

Where Can I Find Additional Information?

For additional details, including a sample compensation clawback policy, see 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.

Please contact one of the listed authors 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.