Governance Briefing — October 26, 2022

Executive briefing: On 26 October 2022 the U.S. Securities and Exchange Commission approved final rules implementing Section 954 of the Dodd-Frank Act. Release 34-96159 compels national securities exchanges to adopt listing standards that obligate listed companies to develop and enforce clawback policies covering incentive-based compensation awarded to current or former executive officers when financial statements are restated due to material noncompliance.

Key requirements

Mandatory clawback policies. Issuers must adopt written clawback policies that apply to incentive-based compensation received during the three years preceding the date a restatement is required.
No-fault recovery. Clawbacks apply regardless of executive misconduct; boards must recover excess incentive pay unless impracticable under narrow exceptions.
Disclosure obligations. Companies must file their clawback policies as exhibits and disclose recoveries or decisions not to pursue recovery in annual reports.

Implications for boards

Compensation committees. Committees need to integrate clawback triggers into plan documents, award agreements, and performance measurement systems.
Finance teams. Controllers must refine restatement detection protocols and coordinate with legal teams on recovery calculations.
Global issuers. Multinationals should align U.S. clawback obligations with local labour laws and existing incentive recovery provisions.

Action checklist

Draft and approve clawback policies that meet exchange standards ahead of effective dates.
Update executive compensation plans and communication materials to reflect recovery provisions.
Establish cross-functional response plans for triggering restatements, including documentation for impracticability analyses.

Sources

Zeph Tech designs clawback governance frameworks, restatement playbooks, and compensation committee controls that satisfy SEC and exchange requirements.