On October 26, 2022, the Securities and Exchange Commission (SEC) adopted final rules implementing Section 954 of the Dodd-Frank Act by directing national securities exchanges and associations, such as the New York Stock Exchange and Nasdaq, to adopt listing standards that will require listed companies to develop and implement compensation clawback policies.
Under the final rules, listed companies will be required to have written compensation clawback policies that require the recoupment of certain incentive-based compensation received by current or former “executive officers” when an issuer has an accounting restatement. Listed companies will also be required to make certain disclosures about their clawback policies. The listing standards will generally apply to all issuers with a class of securities listed on a national securities exchange or association, including foreign private issuers, controlled companies, smaller reporting companies and emerging growth companies.
The final rules materially expand the scope of the SEC’s original compensation clawback policy proposal published in 2015 as set forth in our client alert at that time. Public companies and their audit and compensation committees, executive officers and outside advisors should begin preparing now to deal with the significant implications of the final rules.
Sincronización
- The national securities exchanges and associations must propose listing standards on clawback policies no later than 90 days after the publication of the final rules in the Federal Register.
- The listing standards must be effective no later than one year after the publication of the final rules in the Federal Register.
- Issuers must adopt compliant clawback policies within 60 days after the effective date of the listing standards.
Resumen ejecutivo
- Las normas exigirán que se active la política de recuperación cuando un emisor se vea obligado a preparar una rectificación contable debido al incumplimiento significativo de cualquier requisito de información financiera.
- Las reformulaciones provocadas incluirán tanto las denominadas «Big R» como las «little r». Es decir, incluirán cualquier reformulación contable necesaria para corregir un error en estados financieros emitidos anteriormente que sea significativo para dichos estados financieros, o que daría lugar a una inexactitud significativa si el error se corrigiera en el período actual o se dejara sin corregir en el período actual.
- La política se aplicará a las remuneraciones basadas en incentivos percibidas por los directivos actuales o anteriores durante los tres ejercicios fiscales completos inmediatamente anteriores a la fecha en que el emisor esté obligado a preparar la reexpresión contable.
- No será relevante si existe alguna culpa por parte del directivo que recibió la compensación o si dicho directivo participó en la preparación de los estados financieros sujetos a la reformulación.
- Incentive-based compensation subject to the clawback will include compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure. A “financial reporting measure” is a measure determined and presented in accordance with the accounting principles used in preparing the issuer’s financial statements, any measures that are derived wholly or in part from such measures, and stock price or total shareholder return (TSR). Equity awards that vest based solely on continued employment, and that are not granted on the basis of achieving a financial performance goal, will not be subject to the policy.
- El importe que deberá recuperarse será el exceso del importe de la remuneración basada en incentivos que el directivo haya percibido realmente sobre el importe que habría percibido según las cifras reexpresadas, determinado antes de impuestos. Cuando la remuneración basada en incentivos se base en el precio de las acciones o en el TSR, se podrán utilizar estimaciones razonables para calcular el importe del exceso.
- The issuer will be required to enforce the clawback policy except in narrowly defined exceptional circumstances where the direct expense paid to a third party to enforce the policy would exceed the amount of the recovery, the recovery would be illegal under home country law or the recovery would likely cause an otherwise tax-qualified, broad-based retirement plan to fail to meet certain tax qualification requirements.
- Issuers will not be allowed to indemnify officers or pay for insurance to cover amounts that are clawed back
- The issuer will need to file its clawback policy as an exhibit to its annual report, and issuers will be required to disclose certain information about their enforcement of their clawback policies in proxy statements and Forms 10-K in specified circumstances.
- Se añadirán dos nuevas casillas de verificación a la portada del formulario 10-K en relación con si los estados financieros incluidos en el formulario 10-K reflejan la corrección de un error en los estados financieros publicados anteriormente y si alguna de esas correcciones de errores son reexpresiones que requieren un análisis de recuperación de la remuneración basada en incentivos recibida por los directivos.
Elementos obligatorios de las políticas de recuperación
Las políticas de recuperación exigidas por la nueva Norma 10D-1 deberán cumplir diversos requisitos en cuanto a su alcance y aplicación, tal y como se resume a continuación.
1. Type of Restatement Triggering Recovery of Compensation. The clawback policy will be triggered when an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer with any financial reporting requirement under the securities laws. Triggering restatements will include any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Thus, in a change from the proposed rule, under the final rule, triggering restatements will include both so-called “Big R” restatements and “little r” restatements.” In determining when a restatement is triggered, the SEC reminded issuers that SEC staff has provided guidance on making materiality determinations in Staff Accounting Bulletin No. 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.
Rule 10D-1 does not define “accounting restatement” or “material noncompliance” as existing accounting standards and guidance set forth the meaning of those terms. Under current accounting standards, certain changes would not constitute an error correction, including the following: retrospective application of a change in accounting principle; retrospective revision to reportable segment information due to a change in internal organization structure; retrospective reclassification due to a discontinued operation; retrospective application of a change in reporting entity; retrospective adjustment to provisional amounts in connection with a prior business combination; and retrospective revision for stock splits, reverse stock splits, stock dividends or other changes in capital structure.
2. Individuals Covered. The clawback policy will be required to apply to any individual who served as an executive officer at any time during the performance period that applied to the incentive-based compensation that the individual received. Accordingly, the policy will apply to both current and former executive officers.
Rule 10D-1 uses a definition of “executive officer” similar to the definition under Rule 16a-1(f) of the Securities Exchange Act of 1934 (Exchange Act), rather than the definition of “executive officer” under Rule 3b-7 under the Exchange Act. This definition generally includes the issuer’s president, principal financial officer, principal accounting officer (or, if none, the controller), any vice-president in charge of a principal business unit, division or function, and any other officer who performs a policy-making function, or any other person who performs similar policy-making functions.
It will not be relevant whether there is any fault on the part of the executive officer or whether the executive officer was involved in preparing the financial statements. Companies will not be able to indemnify officers or pay for insurance to cover amounts that are clawed back.
3. Definition of “Incentive-Based Compensation” Subject to Recovery. The clawback policy will be required to apply to “incentive-based compensation,” which is defined as compensation that is granted, earned or vested based wholly or in part upon the attainment of a “financial reporting measure.” “Financial reporting measure” is defined as a measure that is determined and presented in accordance with the accounting principles used in preparing financial statements, and any measures derived from such measures. This includes non-GAAP financial measures and other measures not presented in the financial statements or SEC filings. “Financial reporting measure” is also defined to include stock price and total shareholder return (TSR).
The SEC noted that “incentive-based compensation” is to be determined in a principles-based manner so that new forms of compensation and new measures of performance will be captured. The SEC provided in the adopting release a non-exhaustive list of examples of “incentive compensation”:
- Premios de planes de incentivos no basados en acciones que se obtienen, total o parcialmente, por cumplir un objetivo de rendimiento en materia de información financiera.
- Bonificaciones pagadas con cargo a un «fondo común de bonificaciones», cuyo importe se determina, total o parcialmente, en función del cumplimiento de un objetivo de rendimiento en materia de información financiera.
- Otros premios en efectivo basados en el cumplimiento de un objetivo de rendimiento en materia de información financiera.
- Acciones restringidas, unidades de acciones restringidas, unidades de acciones por rendimiento, opciones sobre acciones y derechos de revalorización de acciones (SAR) que se conceden o se consolidan, total o parcialmente, en función del cumplimiento de un objetivo de rendimiento financiero.
- Proceeds received upon the sale of shares acquired through an incentive plan that were granted or vested based wholly or in part on satisfying a financial reporting measure performance goal.
La SEC también proporcionó ejemplos de remuneraciones que no son «remuneraciones basadas en incentivos»:
- Salarios (a menos que un aumento se base total o parcialmente en el cumplimiento de un objetivo de rendimiento en materia de información financiera);
- Bonificaciones discrecionales no pagadas con cargo a un «fondo común de bonificaciones» determinado por el cumplimiento de un objetivo de rendimiento en materia de información financiera.
- Bonificaciones pagadas únicamente tras cumplir uno o más criterios subjetivos o tras completar un período de empleo específico.
- Premios del plan de incentivos no basados en acciones obtenidos únicamente por cumplir medidas estratégicas u operativas; y
- Las concesiones de acciones que no están supeditadas al cumplimiento de ningún objetivo de rendimiento financiero y cuya adquisición depende únicamente de la continuidad en el empleo o del cumplimiento de objetivos no financieros.
4. Time Periods Covered. The clawback policy will apply to incentive-based compensation “received” during the three fiscal years (and certain transition periods resulting from a change in fiscal year) preceding the date on which the issuer is required to prepare the accounting restatement. Compensation will be deemed “received” when the performance condition is satisfied, even if the compensation is not actually paid or granted until a later date. The SEC noted in the adopting release that the date of receipt of the compensation depends on the terms of the award and provided the following examples:
- Si la concesión de una prima se basa, total o parcialmente, en el cumplimiento de un objetivo de rendimiento en materia de información financiera, la prima se considerará recibida en el ejercicio fiscal en el que se haya cumplido dicho objetivo.
- Si una concesión de acciones solo se devenga tras el cumplimiento de una condición de rendimiento relacionada con una medida de información financiera, la concesión se considerará recibida en el ejercicio fiscal en el que se devenga.
- Una concesión de un plan de incentivos no basados en acciones se consideraría recibida en el ejercicio fiscal en el que el ejecutivo obtiene la concesión en función del cumplimiento del objetivo de rendimiento de la medida de información financiera pertinente, en lugar de en una fecha posterior en la que se pagó la concesión; y
- Una recompensa en efectivo obtenida tras cumplir un objetivo de rendimiento en materia de información financiera se considerará recibida en el ejercicio fiscal en el que se haya cumplido dicho objetivo.
The date on which the issuer is required to prepare the accounting restatement will be the earlier of (a) the date the board, committee or authorized officer concludes, or should reasonably have concluded, that the issuer is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement or (b) the date a court, regulatory or other legally authorized body orders a restatement. The SEC noted in the adopting release that the determination an issuer is required to prepare an accounting restatement may occur before the precise amount of the error has been determined. For an accounting restatement for which an issuer is required to file an Item 4.02(a) Form 8-K, the conclusion that the issuer is required to prepare an accounting restatement is expected to coincide with the occurrence of the event disclosed in the Form 8-K. Furthermore, in determining when there should reasonably have been a conclusion to prepare an accounting restatement, the SEC noted that an issuer would have to consider any notice it may receive from its auditor that previously issued financial statements contain a material error.
5. Amount of Recovery. The amount of the recovery will be the amount by which the incentive-based compensation the executive officer actually received exceeds the amount the executive officer would have received based on the restated numbers. The amount of the recovery will be calculated on a pre-tax basis. Where the incentive-based compensation is based on stock price or TSR, reasonable estimates can be used to calculate the excess amount, but the issuer must maintain documentation of the determination of the reasonable estimate and provide the documentation to its national securities exchange or association.
The SEC noted that the definition of erroneously awarded compensation is intended be applied in a principles-based manner but provided the following guidance:
- En el caso de las indemnizaciones en efectivo, la indemnización erróneamente concedida es la diferencia entre el importe de la indemnización en efectivo (ya sea pagadera en un solo pago o a plazos) que se recibió y el importe que se debería haber recibido aplicando la medida de información financiera reexpresada.
- En el caso de las primas en efectivo pagadas con cargo a los fondos de bonificaciones, la compensación erróneamente concedida será una parte proporcional de cualquier déficit que resulte de la reducción del fondo total de bonificaciones tras la aplicación de la medida de información financiera reformulada.
- En el caso de las concesiones de acciones, si las acciones, opciones o derechos de revalorización de acciones (SAR) siguen en poder del beneficiario en el momento de la recuperación, la compensación concedida erróneamente será el número de dichos valores recibidos por encima del número que se debería haber recibido aplicando la medida de información financiera reexpresada (o el valor de ese número excedente). Si se han ejercido las opciones o los SAR, pero no se han vendido las acciones subyacentes, la compensación concedida erróneamente será el número de acciones subyacentes a las opciones o SAR excedentes (o el valor de las mismas).
Amounts recovered from the executive under Section 304 of the Sarbanes-Oxley Act of 2002 may be credited as a reduction in the amount required to be recovered under the Rule 10D-1 clawback, but the adopting release states that recovery under Rule 10D-1 will not preclude recovery under the Sarbanes-Oxley Act to the extent any applicable amounts have not been reimbursed to the issuer.
6. Recovery Mandatory Unless Impracticable for One of Three Reasons. Recovery of incentive-based compensation subject to the clawback will be mandatory unless the issuer’s compensation committee comprising independent directors, or a majority of independent directors in the absence of a committee, determine that recovery is “impracticable” for one of the following three reasons:
- The direct expense paid to a third party to assist in enforcing the policy would exceed the amount to be recovered. This basis for impracticability would be available only after the issuer has made a reasonable attempt to recover compensation, documented such attempt and provided the documentation to its national securities exchange or association.
- La recuperación infringiría la legislación del país de origen cuando dicha legislación se hubiera adoptado antes de la fecha de publicación de la norma definitiva en el Registro Federal. Este motivo de inviabilidad solo sería aplicable después de que el emisor hubiera obtenido un dictamen del asesor jurídico de su país de origen sobre la infracción y lo hubiera facilitado a su bolsa de valores nacional.
- Es probable que la recuperación provoque que un plan de jubilación amplio y con ventajas fiscales incumpla los requisitos de la Sección 401(a)(13) o la Sección 411(a) del Código de Rentas Internas de 1986, en su versión modificada.
Las juntas directivas podrán ejercer su criterio, con sujeción a restricciones razonables, en cuanto a los medios de recuperación.
The recovery, however, must be effectuated reasonably promptly. The rule does not define “reasonable promptness,” but the SEC noted in the adopting release its expectation that the issuer and its directors will pursue the most appropriate balance of cost and speed in determining the appropriate means to seek recovery in light of their fiduciary duty to safeguard the assets of the issuer, taking into account the time value of money. The SEC also noted in the adopting release that an issuer may be acting reasonably promptly in establishing a deferred payment plan that allows repayment as soon as possible without unreasonable economic hardship to the executive officer.
Divulgación de la política de recuperación
Las normas definitivas incluyen varios requisitos de divulgación relacionados con la política de recuperación. El cumplimiento de los requisitos de divulgación por parte del emisor será un elemento de las normas de cotización.
1. Filing of Clawback Policy. The issuer will need to file the clawback policy as an exhibit to its annual report on Form 10-K.
2. Proxy Statement/Annual Report Disclosures. The rule amends Item 402 of Regulation S-K to require disclosure by listed issuers if at any time during or after the last completed fiscal year the issuer was required to prepare an accounting restatement that required recovery of excess incentive-based compensation or, as of the end of the last completed fiscal year, there was an outstanding balance of excess incentive-based compensation attributable to a prior restatement.
La divulgación requerida en virtud del punto 402 incluirá:
- Para cada reexpresión, (a) la fecha en la que el emisor tuvo que preparar la reexpresión, (b) el importe total en dólares de la remuneración erróneamente concedida atribuible a la reexpresión, incluyendo un análisis de cómo se calculó dicho importe, (c) si la medida de información financiera estaba relacionada con el precio de las acciones o el TSR, las estimaciones que se utilizaron para determinar la remuneración erróneamente concedida atribuible a la reexpresión y una explicación de la metodología utilizada para dichas estimaciones, (d) el importe total en dólares de la remuneración erróneamente concedida que sigue pendiente al final del último año completado, y (e) si el importe de la remuneración erróneamente concedida aún no se ha determinado, ese hecho y las razones de dicha indeterminación.
- Si la recuperación no fuera viable, se revelará el importe de la recuperación no obtenida (para cada uno de los actuales y antiguos directivos ejecutivos nombrados individualmente y para todos los demás directivos ejecutivos como grupo) y se describirá brevemente el motivo por el que el emisor decidió no proceder a la recuperación.
- Para cada ejecutivo actual y anterior mencionado, el importe de la remuneración excedente pendiente no recuperada que haya estado pendiente durante 180 días o más desde la fecha en que el emisor determinó el importe adeudado.
Si el emisor tuvo que preparar una reformulación durante o después de su último ejercicio fiscal completado y llegó a la conclusión de que, según su política, no era necesario recuperar la compensación, deberá explicar brevemente por qué la aplicación de la política le llevó a esa conclusión.
Siempre que un emisor facilite la nueva información exigida en el punto 402 con respecto a las recuperaciones, no será necesario que facilite también la información exigida en el punto 404(a) relativa a las transacciones con partes vinculadas en relación con la actividad de recuperación.
The Item 402 disclosure will need to be provided in XBRL format, but will be required only in annual reports on Form 10-K and proxy statements whenever other Item 402 disclosure is required. The disclosure, therefore, will not be required in registration statements under the Securities Act of 1933. In addition, the disclosure will not be deemed incorporated by reference into any filing under the Securities Act of 1933 unless specifically incorporated by reference.
For any registered management investment company subject to Rule 10D-1, information mirroring the new Item 402 disclosure will need to be included in annual reports on Form N-CSR and in proxy statements and information statements relating to the election of directors. Foreign private issuers will be required to provide the new Item 402 disclosure in annual reports filed with the SEC under Section 13(a) of the Exchange Act.
The Summary Compensation Table rules are amended to require that any amounts recovered under a clawback policy reduce the amount reported in the table for the fiscal year in which the original payment was reported and be identified in a footnote.
3. Form 10-K Checkboxes. The rule adds two new checkboxes to the cover page of Form 10-K relating to whether the financial statements included in the Form 10-K reflect the correction of an error to previously issued financial statements and whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation received by executive officers.
Momento de entrada en vigor de las normas definitivas
The national securities exchanges will have to file with the SEC proposed listing standards implementing the rule no later than 90 days after the SEC final rules are published in the Federal Register. Those new listing standards will need to become effective no later than one year after the publication of the SEC final rules.
Issuers then will need to adopt clawback policies no later than 60 days after the exchanges’ listing standards become effective. The clawback policies will need to apply to all incentive-based compensation received by current or former executive officers (after beginning service as an executive officer and who served as an executive officer during the applicable performance period) on or after the effective date of the applicable listing standard. The clawback policy will be expected to apply to such compensation even if the compensation is received under a pre-existing contract or arrangement.
Compliance with the new Item 402 disclosure rule will be required for all applicable filings with the SEC after the effective date of the exchanges’ listing standards.
Recommended Actions for Listed Companies
- Review any existing clawback policies to determine what revisions will be needed to comply with the final rules and listing standards. Among other items, revisions may be needed relating to the individuals covered, the types of compensation covered, the types of restatements that trigger the policy, the lookback period of the policy, the required mandatory nature of clawbacks and the exceptions to mandated clawbacks. While we do not expect the national securities exchanges to add any additional requirements in their listing standards, it is possible that they may do so, and therefore issuers should not finalize their policies until the listing standards are published.
- Revisar los acuerdos de remuneración basados en incentivos existentes y cualquier otro plan o acuerdo que se vea afectado por la remuneración basada en incentivos o que requiera su pago, con el fin de determinar si existe un derecho contractual vigente para recuperar la remuneración, y considerar la posibilidad de modificar los acuerdos para permitir la recuperación en el futuro.
- Consider the impacts on internal control over financing reporting, quarterly financial reporting closing and disclosure committee processes, determinations of when a restatement is required, procedures and controls through which clawback policies will be implemented if there is a restatement, and compensation program design. Audit committees and compensation committees will need to work together closely on these items.
