March 10, 2023


New NYSE and Nasdaq Clawback Rules Proposed




Margaret Engel
Founding Partner [email protected] 212-921-9353
Bonnie Schindler
Partner [email protected] 847-636-8919


On February 22, 2023, the New York Stock Exchange (NYSE) and Nasdaq Stock Market released rules implementing the Securities and Exchange Commission’s (SEC’s) Dodd-Frank clawback rules. The SEC rules for Section 954 of the Dodd-Frank Act, “Listing Standards for Recovery of Erroneously Awarded Compensation,” were issued in October 2022 and directed the exchanges to adopt clawback policies for listed companies.

Clawback policies require companies to recover executive incentive compensation deemed to have been paid erroneously because of subsequent accounting restatements. While more than 80% to 90% of mid- and large-cap companies have clawback policies in place, the new compensation recovery rules are more stringent than what most companies currently have in place.

The NYSE and Nasdaq rules both closely follow the SEC’s final rule. Noncompliance with the stock exchange rules can result in a company being delisted.

What is the timing for compliance?

Comment Period: The NYSE and Nasdaq rules will be published in the Federal Register and will have a 21-day comment period.

Approval: After the comment period, the SEC must approve the listing standards.

Effective Date: The SEC mandated that the stock exchanges have their clawback rules in effect no later than November 28, 2023, or the Effective Date. Both the NYSE and Nasdaq rules stipulate that any incentive compensation paid after the Effective Date is subject to the new clawback rules in the event of an accounting restatement.

Compliance: Companies are required to implement clawback policies no later than 60 days from the Effective Date – by January 27, 2024, at the latest. The compliance date could be earlier if the Effective Date is earlier than the SEC deadline of November 28, 2023.

Who needs to comply with the new rules?

All listed NYSE and Nasdaq companies need to comply, including emerging growth companies (EGCs), smaller reporting companies (SRCs) and foreign private issuers (FPIs). Noncompliance can result in the company being delisted.

What compensation is impacted by the clawback rules?

The rules apply to incentive compensation received by executive officers of listed companies on or after the Effective Date. Incentive compensation refers to compensation that is contingent in whole or in part on the attainment of financial reporting measures. The rules stipulate that total shareholder return (TSR) and stock price are included in financial reporting measures, although determining the clawback amounts related to TSR and stock price is more complicated than with traditional financial metrics. (The clawback amounts depend on a reasonable estimate of the impact of the accounting restatement on the TSR or stock price. Companies must provide to the stock exchange documentation describing how the clawback amount was determined.) Time-vesting restricted stock and restricted stock units, and stock options are not subject to clawback rules.

What compliance disclosures are required?

Each listed company must have a written clawback policy that is disclosed as an exhibit to the 10-K. The policy must stipulate that the company will recover reasonably promptly the amount of incentive compensation that is deemed to have been awarded in error after an accounting restatement to previous financial statements is deemed necessary. Accounting restatements are deemed necessary if an error or errors are found because of material noncompliance with financial reporting requirements under securities law.

If a listed company applies its clawback policy to executive incentive compensation, the company must disclose in its proxy statement how the clawback policy was applied and must amend its Summary Compensation Table (SCT) amounts for any impacted executive officers. In addition, a checkbox requirement is being added to 10-Ks so that companies can indicate whether the financial statements reflect correction of an error to previously filed financial statements and whether any of those corrections are restatements that require incentive-based compensation recovery analysis.

What should NYSE and Nasdaq listed companies do now?

  • Review current company clawback policies against the SEC and applicable stock exchange rules and identify where changes are needed.
    • Reviews should be done by the board of directors (including the compensation committee and potentially audit committee) in conjunction with company functional areas, such as human resources, finance and legal.
    • Some companies have clawback policies included in their incentive plans. Companies should determine whether they continue this practice or implement a stand-alone clawback policy.
  • Prepare clawback disclosures.
  • Assess executive incentive compensation plans and their performance measures to determine how clawback policies could be implemented and any potential challenges.
  • Evaluate the use of deferral programs or other changes to incentive compensation plans to make clawback policies easier to enforce.

Where can I find more information?

NYSE Rules: New Section 303A.14 and Section 802.01F

Nasdaq Rules: New Listing Rule 5608 and amended Listing Rule 5810(c)(2)(A)(iii)

For additional information about the clawback rule, please see the October 27, 2022 CAP Alert, “SEC Issues Final Clawback Rules.”