On November 28, 2022, the Securities and Exchange Commission (SEC) published final clawback rules in response to the longstanding requirement under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to increase transparency and disclosure in financial reporting; the final rules were adopted by the SEC on October 26, 2022, and became effective on January 27, 2023.

Ultimately, the final rules require companies that are listed on the New York Stock Exchange (NYSE) or NASDAQ to establish, comply with, and disclose a written policy that provides for the recovery, or clawback, by the company of any incentive-based executive compensation that is received by current and/or former executive officers during the three-year period preceding any accounting restatement that is required because of a misstated financial performance measure. Smaller companies, emerging-market companies, foreign private issuers, and controlled companies are not exempt from compliance with the final rules.

In the near term, new Rule 10D-1 of the Securities Exchange Act of 1934, as amended (the Exchange Act), instructs the NYSE and NASDAQ to revise their listing standards to require listed public companies to establish, adopt, and abide by a written clawback policy mandating the recovery of any excess incentive-based compensation—i.e., compensation that is based upon attaining a specific financial reporting measure—that is received by current or former executive officers in the event that the company needs to prepare an accounting restatement due to material noncompliance with a financial reporting requirement under applicable securities law.