Statement on Final Rules Regarding Clawbacks of Erroneously Awarded Compensation

Today, the Commission is considering adopting final rules mandated by the Dodd-Frank Act regarding clawbacks of erroneously awarded incentive-based compensation. 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.

Corporate executives often are paid based on the performance of the companies they lead, with factors that may include revenue and business profits. If the company makes a material error in preparing the financial statements required under the securities laws, however, then an executive may receive compensation for reaching a milestone that in reality was never hit. Whether such inaccuracies are due to fraud, error, or any other factor, today’s rules would implement procedures that require issuers to recover erroneously-rewarded pay, a process known as a “clawback.”

Congress took on this common-sense issue after the financial crisis through Dodd-Frank, mandating that the Securities and Exchange Commission adopt rules on clawbacks. More specifically, Congress mandated that the Commission adopt rules directing national securities exchanges to require clawback policies as part of their listing standards. Through this action, Congress built upon the earlier requirements they passed as part of the Sarbanes-Oxley Act in 2002, which requires chief executive officers and chief financial officers who commit misconduct in connection with their companies’ financials to return incentive-based pay from the previous 12 months.

Today’s action finalizes rules that the Commission first proposed in 2015 and subsequently reopened for public comment in 2021 and 2022 to consider recent shifts in the markets and how companies issue restatements of their financials.

If these rules are adopted, I look forward to the national securities exchanges submitting relevant listing standards on these important matters. Through today’s action and working with the exchanges, we have the opportunity to fulfill Dodd-Frank’s mandate and Congress’s intention to prevent executives from keeping compensation received based on misstated financials.

I am pleased to support this rulemaking, and I believe implementing the clawback rules would benefit investors and promote accountability.

I would like to thank all of the SEC staff involved with today’s amendments, particularly:

• Brian Galle, Lindsay McCord, Betsy Murphy, Luna Bloom, Adam Turk, Anne Krauskopf, Jessica Barberich, and Steven Hearne from the Division of Corporation Finance;
• Brian Johnson, Amanda Wagner, Amy Miller, and Nate Schuur from the Division of Investment Management;
• Chyhe Becker, Al Sheen, PJ Hamidi, Greg Scopino, Wei Liu, Jeorge Young, Charles Woodworth, and Nate Harris from the Division of Economic and Risk Analysis,
• Sharon Lawson and Megan Mitchell from the Division of Trading and Markets;
• Meg Ryan from the Division of Enforcement;
• Dan Berkovitz, Megan Barbero, Bryant Morris, Dorothy McCuaig, Peggy Kim, Cynthia Bien, Will Miller, and Kerry Dingle from the Office of the General Counsel; and
• Paul Munter, Jonathan Wiggins, Shaz Niazi, Carlton Tartar, and Melissa Raminpour from the Office of the Chief Accountant.