Securities regulators wants to make sure publicly traded companies recover any executive compensation that’s awarded based on financial statements that are found to contain errors.
The Securities and Exchange Commission said Wednesday that it has adopted a rule that calls on national securities exchanges to require the companies whose stock they list to comply with the new compensation clawback policy.
Companies will have to disclose any instance when they recovered erroneously awarded incentive-based compensation, whether from a current or former executive. The rule applies to compensation paid out up to three years before the date when a company is required to disclose an accounting statement.
The rule complies with a requirement in Wall Street reform law known as the Dodd-Frank Act, which was enacted in 2010 following the financial crisis.
The policy will officially kick in 60 days following publication in the Federal Register.
SEC Commissioner Hester M. Peirce, who was appointed to the commission in 2018 during the Trump administration, voted against the rule, arguing that, in some cases, it “could impose costs on shareholders greater than the benefits they derive from the clawbacks.”