The Securities and Exchange Commission is gearing up to finalize rules for clawbacks, which means that incentives that have been awarded to executives will have to be returned if errors or misconduct occurs. Currently only the CEO and CFO of public companies are subjected to clawback requirements. While many companies have already put in place clawback rules for executives, the SEC intends to enforce the rules to cover all executives across a company that engages in illegal activity or misconduct.
According to the SEC, the agency will meet on Wednesday to consider amendments to Dodd-Frank’s clawback provision and will require that the national securities exchanges and associations “prohibit the listing of any security of an issuer that is not in compliance” with clawback requirements.
Earlier last week, across the pond, the Financial Conduct Authority (FCA) and the Bank of England Prudential Regulation Authority rolled out new rules that will affect the bonuses of bankers, senior managers, and risk managers, as well. The FCA says if regulators uncover unethical activity or misconduct, chief executives and chairmen will run the risk of having their bonuses clawed back for up to 10 years.
Under Dodd-Frank Section 954, “Recovery of Erroneously Awarded Compensation,” the clawback rules specifically address incentive-based compensation, including stock options that were received by a current or former executive. While some companies deferred implementing clawback rules, others have already unveiled requirements that cover clawbacks in the event of illegal conduct. The final rules by the SEC, however may require some changes to their compliance policies.
The clawback provision was initially passed under the Sarbanes- Oxley Act of 2002. Amid the enactment of Dodd-Frank, the SEC was given more authority to clawback incentives and bonuses from executives under certain situations.