Key takeaways:

The Securities and Exchange Commission has adopted final rules on clawbacks of executive compensation required by the Dodd-Frank Act. The final clawback rules direct the national securities exchanges to adopt listing standards that require most exchange-listed issuers to adopt and comply with written clawback policies, and to provide disclosure regarding those clawback policies and amounts recovered.

• Under these final rules, an issuer’s written clawback policy must provide that if an issuer is required to prepare an accounting restatement (including “little r” restatements), the issuer must recover all incentive-based compensation that was erroneously received by any current or former executive officer during the three years preceding the date such a restatement was required. The recoverable amount is the amount of incentive-based compensation received on a pre-tax basis in excess of the amount that otherwise would have been received had it been determined based on the restated financial measure.
• The final rules also require that a listed issuer file its clawback policy as an exhibit to its Form 10-K and make prescribed disclosures regarding recovery under such policy in the event of an accounting restatement. The final rules also add two new check boxes to the cover page of Form 10-K.
• Each securities exchange has 90 days to file its proposed listing standards implementing the SEC’s final rules, with the listing standards becoming effective within one year following the final rules. Issuers then will have 60 days after the applicable listing standards become effective to amend their existing clawback policies or adopt new policies in compliance with the listing standards. The new disclosures are required on or after the date on which the applicable exchange’s listing standards become effective.