New SEC Clawback Rules Create A 'Two-Policy' Corporate Conundrum

New York partner Mitchel Pahl, Employee Benefits and Executive Compensation, authored an article for Bloomberg Tax assessing new clawback rules by the US Securities and Exchange Commission (SEC) and their impact on publicly traded companies. Effective December 1, public companies were required to enact policies complying with recent SEC guidance on clawing back incentive-based compensation "erroneously awarded"to executives.

Mitchel stated that the guidance formalizes rules enacted as part of the 2010 Dodd-Frank Act and requires companies to comply if any incentive-based compensation was awarded due to "material noncompliance with any financial reporting requirement,"or put simply, due to accounting errors. Many companies have chosen to leave their existing clawback policies in place and adopt a second policy that will serve to meet these new requirements.