Stocksak: U.S. SEC votes on executive compensation clawback rule

© Stocksak. FILEPHOTO: The seal from the U.S Securities and Exchange Commission hangs on the wall of the SEC headquarters in Washington, June 24, 2011 REUTERS/Jonathan Ernst

John McCrank

(Stocksak). – On Wednesday, the U.S. Securities and Exchange Commission (SEC) will vote on whether to approve a rule that would allow the regulator to clawback executives’ compensation if companies have to restate their financials as a result of compliance lapses.

The Congress had ordered the proposed rule following the 2007-2009 financial crisis. However, it was not completed in 2015. Last year, the SEC chair Gary Gensler revived the rule as part of a wider effort to combat corporate malfeasance and increase the agency’s tools for punishing executives.

Gensler stated that he believed the rules, if they were adopted, would increase transparency and quality in corporate financial statements, investor confidence and accountability of corporate executives to shareholders. This statement was made before the vote.

If approved, the measure will apply to all public companies, regardless of their size, and to all executive officers who make policymaking decisions and have received incentive compensation, stock options, and would dramatically expand the agency’s clawback powers that were established in 2002.

In the event that a company is forced to revise its financial statements due to “material noncompliance with securities laws”, the SEC could use this new power to recover additional compensation.

It would apply to any compensation received in the three years preceding the restatement.

It would also direct U.S. Stock Exchanges to establish listing Standards that would require each issuer create and implement such a policy.

Any issuer that fails to comply with the rules’ standards for compensation recovery policies would be delisted.

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