The Securities and Exchange Commission is considering new rules and regulations for compensation claw back policies. If the proposal is adopted, it will implement specific requirements from the Dodd-Frank Wall Street Reform and Consumer Protection Act, where companies listed with national securities exchanges and associations will have to develop and implement clawback policies.

In general, all listed companies must maintain a written claw back policy for the recoupment of certain compensation awarded to executive officers. Some of the specific terms of the executive summary include:

• The claw back policy is triggered when an accounting restatement corrects a material error in a previous financial statement
• The policy applies to incentive-based compensation granted within the preceding three years of the accounting restatement
• Fault or lack thereof is irrelevant to the implementation of the clause

Under the proposal, the claw back clause must contain the following elements:

• Description of the specific type of restatement that triggers the claw back clause;
• Definition of what “incentive-based compensation” is subject to recovery under the claw back clause;
• Statement of the specific time period covered in relation to when the compensation was received by the executive officer;
• Explanation regarding who is covered under the clause;
• Explanation about the amount of recovery authorized under the clause; and
• Statement that recoupment is mandatory unless it is “impracticable.” meaning that the cost of recovering exceeds the total amount of recovered compensation.

For questions about this proposed regulation and possible implications for your company, contact our office to speak with an attorney.