Meaning
Federal regulation in the United States that mandates national securities exchanges to establish listing standards requiring companies to develop and implement clawback policies. Adoption of sec rule 10d-1 ensures that incentive-based compensation is recovered from current and former executive officers if the company is forced to prepare an accounting restatement. This requirement applies regardless of whether the executive was personally responsible for the error.
Restatement Event
Recovery is initiated whenever a company identifies a material error in previously issued financial statements. This includes errors that are material to the prior periods or those that would result in a material misstatement if the error were corrected in the current period. The rule focuses on objective accounting failures rather than subjective performance measures.
Recovery Mandate
Boards of directors are prohibited from waiving the recovery of funds unless the direct cost of collection exceeds the amount to be recovered. Calculation of the recoverable amount is based on the excess of what was paid over what would have been paid based on the corrected financial data. This process must be completed in a timely manner as defined by the exchange.
Listing Requirement
Failure to adopt a policy can lead to delisting. Stock exchanges monitor the disclosure of these policies in annual reports.
