Proposed Rule2021-22754
Reopening of Comment Period for Listing Standards for Recovery of Erroneously Awarded Compensation
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Published
October 21, 2021
Effective
July 14, 2015
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is reopening the comment period for its proposal to implement the provisions of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act"). The proposed rule would direct the national securities exchanges and national securities associations to establish listing standards that would require each issuer to develop and implement a policy providing for the recovery, under certain circumstances, of incentive-based compensation based on financial information required to be reported under the securities laws that is received by current or former executive officers, and require disclosure of the policy (the "Proposed Rules"). The Proposed Rules were set forth in a release published in the Federal Register on July 14, 2015 (Release No. 34-75342) (the "Proposing Release"), and the related comment period ended on September 14, 2015. The reopening of this comment period is intended to allow interested persons further opportunity to analyze and comment upon the Proposed Rules in light of developments since the publication of the Proposing Release and our further consideration of the Section 954 mandate.
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<title>Federal Register, Volume 86 Issue 201 (Thursday, October 21, 2021)</title>
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[Federal Register Volume 86, Number 201 (Thursday, October 21, 2021)]
[Proposed Rules]
[Pages 58232-58237]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-22754]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229, 240, 249 and 274
[Release No. 33-10998; 34-93311; IC-34399; File No. S7-12-15]
RIN 3235-AK99
Reopening of Comment Period for Listing Standards for Recovery of
Erroneously Awarded Compensation
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule; reopening of comment period.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
reopening the comment period for its proposal to implement the
provisions of Section 954 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (``Dodd-Frank Act''). The proposed rule
would direct the national securities exchanges and national securities
associations to establish listing standards that would require each
issuer to develop and implement a policy providing for the recovery,
under certain circumstances, of incentive-based compensation based on
financial information required to be reported under the securities laws
that is received by current or former executive officers, and require
disclosure of the policy (the ``Proposed Rules''). The Proposed Rules
were set forth in a release published in the Federal Register on July
14, 2015 (Release No. 34-75342) (the ``Proposing Release''), and the
related comment period ended on September 14, 2015. The reopening of
this comment period is intended to allow interested persons further
opportunity to analyze and comment upon the Proposed Rules in light of
developments since the publication of the Proposing Release and our
further consideration of the Section 954 mandate.
DATES: The comment period for the proposed rule published July 14,
2015, at 80 FR 41143, is reopened. Comments should be received on or
before November 22, 2021.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/submitcomments.htm">https://www.sec.gov/rules/submitcomments.htm</a>).
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-12-15. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (<a href="http://www.sec.gov/rules/proposed.shtml">http://www.sec.gov/rules/proposed.shtml</a>). Comments also are
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549-1090 on official
business days between the hours of 10 a.m. and 3 p.m. Operating
conditions may limit access to the Commission's public reference room.
All comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly.
[[Page 58233]]
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on our website. To ensure direct electronic
receipt of such notifications, sign up through the ``Stay Connected''
option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
FOR FURTHER INFORMATION CONTACT: Steven G. Hearne, Senior Special
Counsel, in the Office of Rulemaking, at (202) 551-3430, Division of
Corporation Finance, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I. Background
Section 954 of the Dodd-Frank Act added Section 10D to the
Securities Exchange Act of 1934 \1\ (``Exchange Act''), which provides
that the Commission require national securities exchanges and national
securities associations to prohibit the listing of any security of an
issuer that does not develop and implement a policy providing for the
recovery of erroneously awarded compensation and for disclosure of that
policy. As described more fully in the Proposing Release,\2\ under the
Proposed Rules, an issuer would be subject to delisting if it does not
adopt a compensation recovery policy that complies with the applicable
listing standard, disclose the policy in accordance with Commission
rules, and comply with the policy's recovery provisions. Specifically,
the Proposed Rules would:
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\1\ 15 U.S.C. 78a et seq.
\2\ See Listing Standards for Recovery of Erroneously Awarded
Compensation, Release No. 34-75342 (Jul. 1, 2015) [80 FR 41143 (Jul.
14, 2015)].
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1. Require national securities exchanges and associations to
establish listing standards that require listed issuers to adopt and
comply with a compensation recovery policy in which:
i. Recovery is required:
a. From current and former executive officers who received
incentive-based compensation during the three fiscal years preceding
the date on which the issuer is required to prepare an accounting
restatement to correct a material error.
b. On a ``no fault'' basis, without regard to whether any
misconduct occurred or an executive officer's responsibility for the
misstated financial statements.
ii. The amount of incentive-based compensation to be recovered is
the amount received by an executive officer that exceeds the amount the
executive officer would have received had the incentive-based
compensation been determined based on the restated financial
statements.
iii. Issuers must recover in compliance with their recovery
policies except to the extent that it would be impracticable to do so,
such as where the direct expense of enforcing recovery would exceed the
amount to be recovered or, for foreign private issuers, in specified
circumstances where recovery would violate home country law.
iv. Issuers are prohibited from indemnifying current and former
executive officers against the loss of recoverable incentive-based
compensation.
2. Define significant terms, including:
i. ``Incentive-based compensation'' as any compensation that is
granted, earned, or vested based wholly or in part upon the attainment
of a financial reporting measure, and further defining ``financial
reporting measure'' as a measure that is determined and presented in
accordance with the accounting principles used in preparing the
issuer's financial statements, any measure derived wholly or in part
from such financial information, and stock price and total shareholder
return. For incentive-based compensation based on stock price or total
shareholder return, issuers would be permitted to use a reasonable
estimate of the effect of the restatement on the applicable measure to
determine the amount to be recovered.
ii. ``Executive officer'' modeled on the definition of ``officer''
under 15 U.S.C. 78p (``Exchange Act Section 16''), to include the
issuer's president, principal financial officer, principal accounting
officer, any vice-president in charge of a principal business unit,
division or function, and any other person who performs policy-making
functions for the issuer and otherwise conforms to the full scope of
the Exchange Act Section 16 definition.\3\
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\3\ See 17 CFR 240. 16a-1(f).
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3. Require the filing of the compensation recovery policy as an
exhibit to the issuer's Exchange Act annual report, and if during its
last completed fiscal year the issuer either completed a restatement
that required recovery, or there was an outstanding balance of excess
incentive-based compensation relating to a prior restatement, require
disclosure, block tagged in XBRL, to accompany the executive
compensation disclosure in annual reports and any proxy or information
statements of:
i. The date on which the issuer was required to prepare each
accounting restatement, the aggregate dollar amount of excess
incentive-based compensation attributable to the restatement, and the
aggregate dollar amount of excess incentive-based compensation that
remained outstanding at the end of its last completed fiscal year.
ii. The name of each individual subject to recovery from whom the
issuer decided not to pursue recovery, the amounts due from each such
individual, and a brief description of the reason the issuer decided
not to pursue recovery.
iii. If at the end of the issuer's last completed fiscal year,
amounts of excess incentive-based compensation are outstanding from any
individual for more than 180 days, the name of, and amount due from,
each such individual.
4. Apply to all listed issuers except for certain registered
investment companies to the extent they do not provide incentive-based
compensation to their employees and limited accommodations for foreign
private issuers.
II. Reopening of Comment Period
Since the enactment of Section 954 of the Dodd-Frank Act in 2010,
and the publication of the Proposed Rules in 2015, there have been
important developments relating to clawback policies. We have observed
an increase in the number of issuers disclosing information about their
ability to recoup performance-based awards in the event of fraud,
restatement of financial statements, or other reasons, and adopting and
implementing executive compensation clawback policies addressing these
circumstances.\4\
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\4\ An Intelligize search indicates a significant increase in
the number of publicly traded companies that adopted a clawback
compensation policy, from 982 in 2015 to 1,321 in 2018 and to 2,021
in 2020.
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In light of these developments, and our further consideration of
how best to implement the Section 954 mandate, we are reopening the
comment period for the Proposed Rules until November 22, 2021 to
provide the public with an additional opportunity to analyze and
comment on the Proposed Rules. Commenters may submit, and the
Commission will consider, comments on any aspect of the Proposed Rules.
All comments received to date on the Proposed Rules will be considered
and need not be resubmitted. Comments are particularly helpful to us if
accompanied by quantified estimates or other detailed analysis and
supporting
[[Page 58234]]
data regarding the issues addressed in those comments. In addition to
the requests for comment included in the Proposing Release, the
Commission specifically seeks comments on the following:
Request for Comment
1. Exchange Act Section 10D provides for the implementation of a
policy for the recovery of certain incentive-based compensation ``in
the event that the issuer is required to prepare an accounting
restatement due to the material noncompliance of the issuer with any
financial reporting requirement under the securities laws.'' The
Commission proposed to define an ``accounting restatement'' for this
purpose as ``the result of the process of revising previously issued
financial statements to reflect the correction of one or more errors
that are material to those financial statements.'' The proposed
definition would not require a recovery where an issuer's previously
issued financial statements are required to be restated in order to
correct errors that were not material to those previously issued
financial statements, but would result in a material misstatement if
(a) the errors were left uncorrected in the current report or (b) the
error correction was recognized in the current period.
Since the Commission issued the Proposing Release in 2015, concerns
have been expressed that issuers may not be making appropriate
materiality determinations for errors identified. Some commentators
have suggested that this could be because some of these issuers are
seeking to avoid compensation recovery under their clawback
policies.\5\ One commenter expressed concerns regarding immaterial
``revision restatements'' that would allow an issuer to avoid the
application of the proposed clawback provisions and recommended that
the clawback trigger not be limited to material restatements of
previously issued financial statements.\6\ In this regard, we note that
Commission staff has provided guidance that an issuer's materiality
evaluation of an identified unadjusted error should consider the
effects of the identified unadjusted error on the applicable financial
statements and related footnotes, and evaluate quantitative and
qualitative factors.\7\
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\5\ See, e.g., Shh! Companies Are Fixing Accounting Errors
Quietly--WSJ--Wall Street Journal (Dec. 5, 2019). See also
Choudhary, Preeti and Merkley, Kenneth J. and Schipper, Katherine,
Immaterial Error Corrections and Financial Reporting Reliability
(June 15, 2021) available at <a href="https://ssrn.com/abstract=2830676">https://ssrn.com/abstract=2830676</a> or
<a href="http://dx.doi.org/10.2139/ssrn.2830676">http://dx.doi.org/10.2139/ssrn.2830676</a>; and Thompson, Rachel,
Reporting Misstatements as Revisions: An Evaluation of Managers' Use
of Materiality Discretion (Sept. 17, 2021) available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3450828">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3450828</a>.
\6\ See letter in response to the Proposing Release from AFL-CIO
(Sept. 14, 2015) (``AFL-CIO''). Some commenters supported a trigger
when any revision to previously issued financial statements
occurred. See, e.g., letters in response to the Proposing Release
from As You Sow Foundation (Sept. 15, 2015); Council of
Institutional Investors (Aug. 27, 2015); California Public Employees
Retirement System (Sept. 14, 2015). Other commenters supported the
proposed standard to limit the trigger to material restatements of
previously issued financial statements. See, e.g., letters in
response to the Proposing Release from Ernst & Young LLP (Sept. 15,
2015) and Society of Corporate Secretaries and Governance
Professionals (Sept. 18, 2015) (``SCSGP'').
\7\ The staff has provided guidance to assist registrants in
carrying out these evaluations. See Staff Accounting Bulletin No.
99, Materiality (Aug. 12, 1999) and Staff Accounting Bulletin No.
108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements
(Sept. 13, 2006). The statements in the staff accounting bulletins
are not rules or interpretations of the Commission, nor are they
published as bearing the Commission's official approval. They
represent interpretations and practices followed by the Division of
Corporation Finance and the Office of the Chief Accountant in
administering the disclosure requirements of the Federal securities
laws.
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We are considering whether the term ``an accounting restatement due
to material noncompliance'' should be interpreted to include all
required restatements made to correct an error in previously issued
financial statements.\8\ This interpretation would include restatements
required to correct errors that were not material to those previously
issued financial statements, but would result in a material
misstatement if (a) the errors were left uncorrected in the current
report or (b) the error correction was recognized in the current
period. Under such an interpretation, those restatements as well as
restatements to correct errors that are material to the previously
issued financial statements, would be considered ``an accounting
restatement due to material noncompliance'' and therefore would result
in a clawback recovery analysis. We believe that revising the Proposed
Rules to encompass these types of restatements would be an appropriate
means of implementing the statute.
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\8\ See Financial Accounting Standards Board (``FASB'')
Accounting Standards Codification (``ASC'') Topic 250, which defines
``error in previously issued financial statements'' as an error in
recognition, measurement, presentation, or disclosure in financial
statements resulting from mathematical mistakes, mistakes in the
application of generally accepted accounting principles, or
oversight or misuse of facts that existed at the time the financial
statements were prepared.
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Should the scope of the Proposed Rules include (1) restatements
that correct errors that are material to previously issued financial
statements and (2) restatements that correct errors that are not
material to previously issued financial statements, but would result in
a material misstatement if (a) the errors were left uncorrected in the
current report or (b) the error correction was recognized in the
current period? Are there practical or other considerations that would
make application of the clawback policy in these circumstances
challenging or unduly burdensome? If so, are there additional changes
we should make to address those challenges or burdens? For example, in
instances where a clawback analysis would be trigged by restatements
that correct errors that are not material to previously issued
financial statements, should the rules provide additional discretion
for compensation committees of the issuer's board of directors to
determine whether to pursue recovery of incentive-based compensation
and how much to recover, and would such discretion be consistent with
Section 954? Is there an alternative interpretation of ``an accounting
restatement due to material noncompliance'' that would be more
appropriate and better capture required restatements? Are there
accounting restatements that are due to material noncompliance that
would not be captured by the proposed definition or the interpretation
set forth above that should be subject to clawback?
2. For purposes of triggering the three-year lookback period, the
Proposed Rules would establish the date on which an issuer is required
to prepare an accounting restatement as the earlier of (a) the date the
issuer's board of directors, a committee of the board of directors, or
the officer or officers of the issuer authorized to take such action if
board action is not required, concludes, or reasonably should have
concluded, that the issuer's previously issued financial statements
contain a material error, or (b) the date a court, regulator or other
legally authorized body directs the issuer to restate its previously
issued financial statements to correct a material error. The Proposing
Release indicated the Commission's belief that a definition that
incorporates the proposed triggering events rather than leaving the
determination solely to the discretion of the issuer would better
realize the objectives of Section 10D while providing clarity about
when a recovery policy, and specifically the determination of the
three-year look-back period, would be triggered for purposes of the
proposed listing standards. Some commenters expressed concern that the
``reasonably should have concluded'' standard adds
[[Page 58235]]
unnecessary uncertainty to the determination.\9\ Should we remove the
``reasonably should have concluded'' standard in light of concerns that
the standard adds uncertainty to the determination? For example, should
we revise the trigger to use the earlier of (a) the date the issuer's
board of directors, a committee of the board of directors, or the
officer or officers of the issuer authorized to take such action if
board action is not required, concludes that the issuer's previously
issued financial statements require a restatement to correct an error
in those financial statements that is material to the previously issued
financial statements or that would result in a material misstatement if
(1) the error was left uncorrected in the current report or (2) the
error correction was recognized in the current period; or (b) the date
a court, regulator or other legally authorized body directs the issuer
to restate its previously issued financial statements for either type
of error? For errors that are material to the previously issued
financial statements, we generally expect the date in (a) to coincide
with the date disclosed in the Item 4.02(a) Form 8-K filed.\10\ For
errors that are not material to the previously issued financial
statements but where the issuer concludes that a restatement is
required, we believe evidence of the conclusion that a restatement is
required is generally included in the issuer's documentation of its
materiality analysis of the error.\11\ Should we remove the
``reasonably should have concluded'' standard in light of concerns
raised by commenters, regardless of whether we revise the proposed
trigger to accommodate the additional accounting restatements that we
are considering? Is there another standard consistent with the purposes
of the rule that may reduce the expected complexities of applying the
``reasonably should have concluded'' standard?
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\9\ See letters in response to the Proposing Release from
American Bar Association (Feb. 11, 2016) (``ABA''); Business
Roundtable (Sept. 14, 2015); Center on Executive Compensation (Sept.
14, 2015); Davis Polk & Wardwell LLC (Sept. 11, 2015); Exxon Mobil
Corporation (Sept. 14, 2015); and SCSGP. The letter from Exxon Mobil
Corporation asserted it is not ``a realistic concern'' that issuers
would delay issuing a restatement to avoid a clawback.
\10\ An Item 4.02(a) Form 8-K is required to report when the
registrant concludes that its previously issued financial statements
should no longer be relied upon because of an error in such
financial statements as addressed in FASB ASC Topic 250, Accounting
Changes and Error Corrections.
\11\ An Item 4.02 Form 8-K is not typically filed for an error
that is not material to the previously issued financial statements.
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3. The Commission proposed defining a number of terms for purposes
of the Proposed Rules. Alternatively, should the Commission rely on
common understanding or specifically delineate the rules without
relying on a set of definitions specific to this rule? For example, an
``accounting restatement'' was proposed to be defined solely for the
purposes of the Proposed Rule as ``the result of the process of
revising previously issued financial statements to reflect the
correction of one or more errors that are material to those financial
statements.'' U.S. GAAP and IFRS include guidance on how an issuer
should correct accounting errors in previously issued financial
statements.\12\ In addition, Federal securities laws and Commission
rules require presenting information that is not misleading. To assist
registrants with compliance with the Federal securities laws, the staff
has provided certain guidance on how registrants assess the materiality
of an accounting error.\13\ Because the revised clawback trigger we are
considering would specifically refer to all required restatements to
previously issued financial statements, including those restatements
that were not material to those previously issued financial statements,
but would result in a material misstatement if (a) the errors were left
uncorrected in the current report or (b) the error correction was
recognized in the current period, we are considering whether it would
be more appropriate to rely on existing guidance, literature and
definitions concerning accounting errors rather than define
``accounting restatement'' and ``material noncompliance.'' Should we
rely on these existing resources and remove the proposed definitions of
``accounting restatement'' and ``material noncompliance''?
Alternatively, are there other definitions of ``accounting
restatement'' and ``material noncompliance'' we should use or would
adding new definitions cause more confusion in their application?
Additionally, if the rule does not establish a specific definition
regarding when incentive-based compensation is ``received,'' what
guidance, if any, should we provide regarding the meaning of that term?
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\12\ See FASB ASC Topic 250, Accounting Changes and Error
Corrections, and International Accounting Standard 8, Accounting
Policies, Changes in Accounting Estimates and Errors.
\13\ See supra note 7.
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4. If we interpret the statutory term ``an accounting restatement
due to material noncompliance'' to include restatements required to
correct errors that were not material to previously issued financial
statements, but would result in a material misstatement if (a) the
errors were left uncorrected in the current report or (b) the error
correction was recognized in the current period, then those
restatements would require a recovery analysis. Registrants do not
always label historical financial statements as ``restated'' for these
types of restatements. Also, an Item 4.02 Form 8-K filing is not
typically filed for this type of error, because the error is not
material to the previously issued financial statements. As such, to
provide greater transparency around such restatements, we are
considering whether to add check boxes to the cover page of the Form
10-K that indicate separately (a) whether the previously issued
financial statements included in the filing include an error
correction, and (b) whether any such corrections are restatements that
triggered a clawback analysis during the fiscal year. Would one or both
checkboxes and the related information be useful to investors? Is there
another method, such as via a Form 8-K filing, that we should consider
in order to provide this information to investors in a transparent and
prominent manner? Are there any other disclosures that would be useful
to investors in explaining or clarifying information surrounding any
restatements or the issuer's decision of whether or not to claw back
compensation?
5. As noted above, there has been an observed increase in voluntary
adoption of compensation clawback policies in recent years, together
with accompanying disclosures about those policies. These developments
would impact the potential costs of the Proposed Rules at the aggregate
level. However, such impact is likely to differ across issuers in a
variety of ways. For example, some issuers may already have policies
that would satisfy, or easily could be modified to satisfy, the
requirements of the Proposed Rules. Other issuers may have clawback
policies in place that are substantially different from the
requirements of the Proposed Rules, or may not have clawback policies
in place altogether. We request any estimates or data that would allow
us to refine our characterization of costs and benefits of the clawback
policies under the current state of issuer clawback policies and how
such effects would differ under the Proposed Rules. In particular, we
request specific estimates of the costs that are incurred by issuers in
implementing these policies, and the costs and benefits to investors.
How might these costs and/or benefits change in implementing a policy
pursuant to a
[[Page 58236]]
Commission rulemaking and the new potential interpretation of ``an
accounting restatement due to material noncompliance''? We also request
data regarding the characteristics of voluntarily adopted clawback
policies (for example, clawback triggers, scope of covered persons,
scope of compensation covered, among other characteristics), and data
regarding compensation structures that are used by issuers (for
example, compensation instruments utilized, measures used to award/earn
such compensation, among others). Has the voluntary adoption of
clawback provisions resulted in a decrease of incentive-based
compensation or an increase in compensation tied to non-financial
performance by issuers?
6. We understand that as part of the materiality analysis relating
to errors, issuers already consider whether any misstatement of
previously issued financial statements had the effect of increasing
management's compensation. To what extent can the evaluation already
conducted in connection with evaluating the materiality of an error be
leveraged in connection with determining the need for and the amount of
any clawback? Would revising the scope of the Proposed Rules to
encompass additional accounting restatements, as described above,
affect how an issuer conducts this evaluation and, if so, how? Would
revising the scope largely capture situations where issuers may have
shifted from restating previously issued financial statements to avoid
triggering compensation clawback policies, or would there be situations
where the revised scope becomes over-inclusive? How would revising the
scope impact the costs to issuers or benefits to investors of the
clawback provision and the execution of the clawback analysis as
compared to the Proposed Rules? We request data or analysis that will
assist us in evaluating the effects of including these additional
accounting restatements within the scope of the rule, in particular any
data that may assist in quantifying the number of additional clawback
analyses that would be triggered and the costs and benefits of revising
the scope of the rule. How would the potential changes discussed in
this release affect the appropriateness of the scope of the Proposed
Rules overall? For example, in response to the Proposing Release, some
commenters stated that the Proposed Rules applied too broadly both to
individuals and to issuers.\14\ Is the rule as proposed appropriately
tailored? How, if at all, would the changes to the scope of the rules
discussed in this release affect the other aspects of the Proposed
Rules?
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\14\ See e.g., letters in response to the Proposing Release from
ABA; National Association of Manufacturers (Sept. 14, 2015); and
SCSGP. But see, e.g., letters in response to the Proposing Release
from Better Markets, Inc. ((Sept. 14, 2015); and AFL-CIO (supporting
the scope of the Proposed Rules).
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7. The Commission proposed to define the recoverable amount as
``the amount of incentive-based compensation received by the executive
officer or former executive officer that exceeds the amount of
incentive-based compensation that otherwise would have been received
had it been determined based on the accounting restatement.'' \15\
Applying this definition, after an accounting restatement, the issuer
would first recalculate the applicable financial reporting measure and
the amount of incentive-based compensation based thereon. The issuer
would then determine whether, based on that financial reporting measure
as calculated relying on the original financial statements and taking
into account any discretion that the compensation committee had applied
to reduce the amount originally received, the executive officer
received a greater amount of incentive-based compensation than would
have been received applying the recalculated financial reporting
measure.
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\15\ See Proposed Rule 10D-1(b)(1)(iii).
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There are a number of possible methods to reasonably estimate the
effect of an accounting restatement on stock price with varying levels
of complexity and a range of related costs. For incentive-based
compensation based on stock price or total shareholder return, where
the amount of erroneously awarded compensation is not subject to
mathematical recalculation directly from the information in the
accounting restatement, the Proposed Rules would require an issuer to
maintain documentation of the determination of that reasonable estimate
and provide such documentation to the relevant exchange or
association.\16\ The Proposed Rules did not explicitly require
disclosure of how issuers calculated the recoverable amount. We request
comment on whether additional disclosures beyond what was proposed
should be required. For example, would investors benefit from
disclosure of how issuers calculated the recoverable amount, including
their analysis of the amount of the executive's compensation that is
recoverable under the rule, and/or the amount that is not subject to
recovery? For incentive-based compensation based on stock price or
total shareholder return, would investors benefit from disclosure
regarding the determination and methodology that an issuer used to
estimate the effect of stock price or total shareholder return? What
are the costs associated with such disclosure?
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\16\ See Proposed Rule 10D-1(b)(1)(iii)(B).
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8. Have there been any changes or developments since the Proposing
Release with respect to payment of incentive-based compensation by
listed registered management investment companies that should affect
how listed registered management investment companies are treated under
the Proposed Rules? If an investment company, or a business development
company, is externally, rather than internally, managed, should this
impact how the company is treated under the Proposed Rules? For
example, should listed business development companies (or externally
managed listed business development companies) be treated the same as
listed registered management investment companies and be eligible for
the conditional exemption as long as they do not actually pay
incentive-based compensation? Should we reconsider any of the Proposed
Rules' conditions or disclosure requirements with respect to registered
or unregistered investment companies? What impact would any of those
changes have on the economic effects of the rule?
9. The Commission proposed to require that the new compensation
recovery disclosures be block-text tagged using XBRL. The Commission is
considering requiring that specific data points within the new
compensation recovery disclosure be separately detail tagged using
Inline XBRL instead of, or in addition to, the proposed block-text
tagging.\17\ Would Inline XBRL detail tagging of some or all of the
compensation recovery disclosures be valuable to investors? If so,
which disclosures should we require issuers to detail tag and why? Is
there an alternative technology to XBRL that we should consider? Should
we enable more flexibility by adopting other tagging technologies?
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\17\ Subsequent to the proposal, the Commission adopted rules
replacing XBRL tagging requirements for issuer financial statements
and open-end fund risk/return summary disclosures with Inline XBRL
tagging requirements. Inline XBRL embeds the machine-readable tags
in the human-readable document itself, rather than in a separate
exhibit. See Inline XBRL Filing of Tagged Data, Release No. 33-10514
(June 28, 2018) [83 FR 40846 (Aug. 16, 2018)]. As a result of those
changes, we are considering using Inline XBRL, rather than XBRL, for
the proposed tagging requirements.
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10. Are there any other developments since the Proposing Release
that should affect our consideration of the Proposed
[[Page 58237]]
Rules or their potential economic effects? Are there any changes we
should consider in the methodologies and estimates used to analyze the
economic effects of the Proposed Rules in the Proposing Release?
We request and encourage any interested person to submit comments
regarding the Proposed Rules, specific issues discussed in this release
or the Proposing Release, and other matters that may have an effect on
the Proposed Rules. We request comment from the point of view of
issuers, shareholders, directors, investors, and other market
participants. We note that comments are of particular assistance to us
if accompanied by supporting data and analysis of the issues addressed
in those comments, particularly quantitative information as to the
costs and benefits. If alternatives to the Proposed Rules are
suggested, supporting data and analysis and quantitative information as
to the costs and benefits of those alternatives are of particular
assistance. Commenters are urged to be as specific as possible; when
commenting, it would be most helpful if you include the reasoning
behind your position or recommendation. All comments received to date
on the Proposed Rules will be considered and need not be resubmitted.
If any commenters who have already submitted a comment letter wish to
provide supplemental or updated comments, we encourage them to do so.
Dated: October 14, 2021.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-22754 Filed 10-20-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on October 21, 2021.
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