On Tuesday and Wednesday of this week, the New York Stock
Exchange (NYSE) and the Nasdaq Stock Market filed amendments to
their proposed clawback policy listing standards, subject to
approval by the Securities and Exchange Commission (SEC).
Critically, among other revisions, the amendments delay the
effective date of the listing standards by nearly four
months, from June 11, 2023, to October 2, 2023. Assuming the SEC
adopts the amendments as proposed, this means that issuers will
have until December 1, 2023 – 60 days from
the new effective date – to adopt and begin enforcing
policies regarding the recovery of erroneously awarded,
incentive-based compensation received by current and former
executive officers. The text of the proposed listing standards, as
amended, can be found here: NYSE and Nasdaq.
In their discussions of the amendments, both exchanges stated that
the decision to push out the effective date of the listing
standards was consistent with the goal of prompt implementation of
the final clawback rule, and it also was more in line with
issuers' expectations that the proposed standards would take
effect one year after the SEC's adoption of the final rule. SEC
staff had stated in the adopting release for the final clawback
rule that "issuers [would] have more than a year from the date
the final rules [were] published in the Federal Register"
– i.e., November 28, 2022 – "to prepare and adopt
compliant recovery policies."
In addition to delaying the effectiveness of the listing standards and the deadline for policy adoption, the NYSE amendment includes the following updates and clarifications:
- Cure period for other noncompliance. The original proposed listing standard (Section 303A.14 of the Listed Company Manual) established a cure period in the event that a listed issuer failed to adopt a clawback policy within the required time period. The amendment also provides for a cure period in the event of other instances of noncompliance with the listing standard, including when the listed issuer has not recovered erroneously awarded compensation reasonably promptly.
- Clarification regarding covered issuers. The amendment revises Section 303A.00 of the Listed Company Manual to make it clear that certain categories of listed issuers, including foreign private issuers, are required to comply with the clawback listing standards.
The Nasdaq amendment is more limited in scope and only provides for the delay in the effective date. Both sets of proposed listing standards, as amended, are otherwise substantively unchanged from the original NYSE and Nasdaq proposals.
Issuers will now have adequate time to prepare for the application of the listing standards and the development of recovery policies, including – in some cases – the renegotiation of certain contracts and review of equity grant documentation. Although companies now have more breathing room to adopt clawback policies, the additional time should be used to thoughtfully evaluate the appropriate go-forward approach for compliance with the rules. Delayed effectiveness also means that it may be easier to present a compliant policy to the board or compensation committee for adoption at a regularly scheduled board or committee meeting in the fall, rather than being forced to convene an off-cycle board or committee meeting.
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