By John McCrank
(Reuters) – The U.S. Securities and Exchange Commission on Wednesday will vote on whether to adopt a rule that would expand the regulator’s powers to clawback executives’ compensation when companies restate their financials due to compliance lapses.
The proposed rule, which Congress had mandated following the 2007-2009 financial crisis, but was left unfinished in 2015, was revived by the SEC under Chair Gary Gensler last year as part of a broader effort to crack down on corporate malfeasance by boosting the agency’s tools for penalizing executives.
“I believe that these rules, if adopted, would strengthen the transparency and quality of corporate financial statements, investor confidence in those statements, and the accountability of corporate executives to investors,” Gensler said in a statement ahead of the vote.
If approved, the measure would apply to public companies of all sizes and to any executive officer who performs policymaking decisions and who has received incentive compensation, including stock options, dramatically expanding the scope of the agency’s existing clawback powers which were created in 2002.
The SEC could use the new power to recover compensation in excess of what the executive concerned should have received in the event a company has to restate its financials due to “material noncompliance” with securities laws.
It would apply to compensation paid in the three years leading up to the restatement, regardless of whether the misstatement was due to fraud, errors, or any other factor.
It would also direct U.S. stock exchanges to establish listing standards that would require each issuer to develop and implement such a policy.
Issuers that do not adopt and comply with compensation recovery policies that meet the rule’s standards would be subject to delisting.