SEC's Final "Clawback" Rule May Pose Code Section 409A Issues For Nonqualified Plan Sponsors

In 2015, the Securities and Exchange Commission ("SEC") proposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("the Dodd-Frank Act") a requirement for publicly-traded companies to adopt clawback policies for recovering erroneously awarded compensation from its executive officers. On October 26, 2022, the SEC adopted the long-awaited final rules, and NYSE and Nasdaq-listed companies are required to adopt compliant clawback policies by December 1, 2023.

Under the final SEC rule, public companies and certain other companies must adopt clawback policies that provide for recovery of "incentive-based compensation," defined as "any compensation that is granted, earned, or vested based wholly or in part upon the attainment of any financial reporting measure." The rule raises a number of corporate governance issues for publicly traded companies. However, nonqualified plan administrators should also pay attention, particularly if there is discussion