US SEC breathes new life into 2015 executive compensation clawback rule

File photo: U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee watch hearing on the SEC on Capitol Hill in Washington . REUTERS / Evelyn Hockstein

WASHINGTON (Reuters) – The United States Securities and Exchange Commission (SEC) on Thursday voted to revive a rule, left unfinished since 2015, that would expand the regulator’s powers to claw back executive pay when a company needs to retire its financial statements due to laps compliance.

The SEC said it would seek a new round of public comment on the rule, which was mandated by Congress following the 2007-2009 financial crisis, with a view to finalizing the rule likely next year.

The SEC proposed a project in 2015, but failed to finalize it. The effort to revive the rule is part of a larger push by the SEC, now controlled by Democrats, to crack down on corporate malfeasance by strengthening its tools to penalize executives.

Gary Genlser, the agency’s chairman, said in a statement that the reopening of the comment period offers the watchdog “an opportunity to strengthen the transparency and quality of companies’ financial statements, as well as the accountability of executives. to their investors “.

If finalized, the measure would apply to SOEs of all sizes and to any senior executives who make political decisions and who have received incentive compensation, including stock options, significantly expanding the scope of The agency’s existing clawback powers that were created in 2002.

The SEC could use the new power to claw back more compensation than the affected executive should have received in the event a company had to restate its financial statements due to a “material breach” of securities laws.

It would apply to compensation paid in the three years prior to restatement – “regardless of whether the inaccuracy is due to fraud, error or some other factor”.

It would also order US exchanges to establish listing standards that would require every issuer to develop and implement such a policy.

The five SEC commissioners voted unanimously on Thursday to reopen the comment period and proposed a stricter interpretation of the rule than the previous proposal from 2015, including reviewing the scope of “accounting restatement” and the standard ” should reasonably have concluded ”to trigger a look back.

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