On June 9, the SEC approved New York Stock Exchange and Nasdaq Stock Market listing standards requiring listed companies to have a policy regarding the recovery of executive compensation that was erroneously awarded based on financial reporting that was subsequently restated. These new listing standards will become effective on October 2, 2023. Under the new standards, listed companies must have a claw back policy in place by December 1, 2023.
SEC Rule 10D-1 requires the exchanges to adopt these listing standards. The Commission promulgated Rule 10D-1 in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Commission also issued new disclosure requirements to complement the compensation recovery policy.For additional background on the claw back requirement, see Restatements Will Trigger Compensation Claw Backs Under New SEC Rule, November-December 2022 Update. As noted in that item, the new rule potentially affects the work of the audit committees by changing the stakes of a decision to restate. As the disincentives to restate increase, audit committees will need to become more vigilant in making sure that they are fully and evenhandedly informed in situations in which a restatement is a possibility.
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