A Plain English Guide To The SECs Compensation Clawback Rules

As accounting restatements occur relatively infrequently, and the severity is often modest, the proposed "clawback" rules represent more of a "check the box" compliance activity than a real enforcement threat.

When to comply?

Technically, adopting a recovery policy is not necessary until 60 days after the exchanges' listing standards become effective. However, the "clawback" rules must be enforced if there is a restatement during a company's fiscal year in which the SEC adopts its final rules. Therefore, we recommend that our client's compensation committees be ready to adopt the sample Compensation Clawback Policy set forth below shortly after the SEC finalizes its rules. This could happen as early as Q4 2015 but is more likely to occur in 2016.