Corporate Communicator - Fall 2015
In this issue of the Corporate Communicator, we bring you an article about the SEC’s recently released proposal to adopt rules for the clawback of executive compensation. The proposal is already controversial and it may prove to have far-reaching consequences on how executive compensation arrangements are structured.
SEC Proposes Rules for the Clawback of Executive Compensation
by Cheryl Ikegami, Tom Hoecker and Greg Gautam
On July 1, 2015, the Securities and Exchange Commission (“SEC”) proposed rules to implement Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which requires the SEC to adopt rules directing the national securities exchanges to prohibit the listing of any security of an issuer that is not in compliance with certain requirements relating to the “clawback” of executive compensation. The proposed rules raise a number of questions and uncertainties, some of which we discuss below. Such uncertainty could beget litigation, either by an officer against whom a clawback is being asserted or by the shareholders (assuming that the courts infer a private right of action in this context), or by both. In addition, if the SEC or the relevant exchange disagrees with an issuer’s application of its clawback policy, it is unclear how or if the resulting failure can be cured. These types of grey areas are particularly unwelcome when the consequence of second guessing is a potential delisting. Comments on the proposed rules are due by September 14, 2015.
[Read the full alert.]