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Thursday, July 2, 2015

SEC Proposes Executive Bonus ‘Clawback’ Rule

The SEC voted 3-2 to propose a rule that would require exchanges to establish standards for revoking executive bonuses when companies restate earnings. The rule is the SEC’s last executive compensation rule to be proposed under the Dodd-Frank Act §954.

Under the proposal, a publicly listed company would be required to establish and enforce policies to claw back executive bonuses when accounting errors lead to restatement of earnings, regardless of the executives’ fault. The clawback would apply to incentive-based compensation that is tied to accounting-related measures, stock prices or total shareholder return.

The proposed clawback window would extend for three years after the bonus is given. All listed companies — regardless of size and excepting certain mutual funds – would be required to adopt such policies. The comment period closes 60 days after the rule is published in the Federal Register.

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