Heads Up — SEC proposes rule on 'clawback' policies
The SEC recently issued a proposed rule aimed at ensuring that executives do not receive "excess compensation" if the financial results on which previous awards of compensation were based are subsequently restated because of material noncompliance with financial reporting requirements.
Specifically, the proposal would implement the mandate in Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) that requires the SEC to adopt rules directing the national securities exchanges and national securities associations to prohibit the listing of any security of an issuer that has not adopted a written policy providing for the recovery of incentive-based compensation (IBC) under certain circumstances. It would also amend paragraph (b) of Regulation S-K, Item 601, to require that a listed issuer disclose its recovery policy in an exhibit to its annual report.
The proposed rule raises numerous questions and poses potential challenges. To obtain feedback from stakeholders, the SEC is requesting comments on 101 questions related to the proposal. Comments are due by September 14, 2015.
This Heads Up discusses key provisions of the proposed rule and their potential accounting and tax consequences to help companies better understand the proposal and determine how (or whether) to comment on it.
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Heads Up newsletters, published as warranted, analyze important accounting developments, such as new FASB and IASB pronouncements or exposure drafts. Concise examples and answers to frequently asked questions assist readers in understanding and implementing the critical guidance.