The Dodd-Frank Wall Street Reform and Consumer Protection Act became law on July 21, 2010, introducing a variety of executive compensation-related regulations, including with respect to shareholder say-on-pay voting and independence requirements for members of the compensation committees and their advisers.  Almost five years following the enactment of the Dodd Frank Act, the rules enacting the incentive compensation clawback provisions under Dodd Frank Act Section 954 have not even been proposed

That is expected to change next week, as the SEC issued notice yesterday of an open meeting on July 1 to consider whether to propose amendments under Section 10D of the Securities Exchange Act of 1934 to implement the Dodd Frank Act’s clawback requirements.  Please see the SEC’s notice (available here) for further details with respect to the open meeting.

Entitled “Recovery of Erroneously Awarded Compensation,” Section 954 of the Dodd Frank Act generally directs the SEC to issue rules requiring the national securities exchanges and associations to prohibit the listing of any security of an issuer that has not developed and implemented policies regarding the recovery of excess incentive-based compensation paid to the issuer’s executive officers if an accounting restatement is required as a result of material failure to comply with applicable financial reporting requirements, and to require issuers to disclose such incentive compensation recovery policies.  Specifically, the clawback rules under Section 954 apply to incentive-based compensation (including compensatory stock options) received by any current or former executive officer of the issuer during the three-year period preceding the date on which such an accounting restatement is required, to the extent such compensation was based on the erroneous data and was in excess of what would have been received using the corrected data under the accounting restatement.

How the SEC proposes to resolve various ambiguities, uncertainties and open questions under the language of the Dodd Frank Act rules (as well as the initial proxy season in which compliance with those rules will be required) remains to be seen, but in any event certainly will impact how public companies structure their incentive compensation recoupment policies and practices.  Although many companies – especially those in the Fortune 500 – have adopted some form of an incentive compensation clawback policy, a significant number of companies have deferred the adoption, review and/or update of their incentive compensation clawback provisions and policies pending SEC guidance on the Dodd Frank Act’s clawback requirements since the adoption of the Dodd Frank Act.  In any case, all public companies – even those companies that have such policies in place – will need to become familiar with the proposed (and ultimately the final) rules.

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Photo of Andrea Rattner Andrea Rattner

Andrea S. Rattner is a partner in the Tax Department and member of the Employee Benefits & Executive Compensation Group. For more than 30 years, her practice has focused on a broad range of executive compensation and employee benefits matters, advising clients on…

Andrea S. Rattner is a partner in the Tax Department and member of the Employee Benefits & Executive Compensation Group. For more than 30 years, her practice has focused on a broad range of executive compensation and employee benefits matters, advising clients on an ongoing basis as well as in the context of corporate transactions and other transformative and unique situations. Her clients include public and private companies, boards of directors, compensation committees and senior executives in a broad range of industries. Andrea has been involved in Firm management for many years, having served as a member of the Executive Committee and a former chair of the Tax Department.

Andrea counsels clients with respect to the tax, securities, corporate governance, stock exchange, ERISA and other implications affecting executive compensation arrangements. Andrea regularly provides advice regarding equity arrangements (such as stock options, restricted stock, RSUs, LLC/partnership interests and phantom equity), employment agreements, change-in-control agreements and all other types of compensation arrangements (including incentive awards, SERPs, deferred compensation and “409A” covered and exempt arrangements).

She counsels clients on benefits and compensation matters arising in all types of corporate transactions, including mergers & acquisitions, spin-offs, restructurings, joint ventures, debt and equity offerings and bankruptcies. In numerous transactions, she has addressed the treatment of stock options and other equity awards, change-in-control and “golden parachute” tax issues, severance obligations and separation agreements, the negotiation of new employment agreements and other executive arrangements, retention and other bonus plans, benefit plan liabilities, COBRA, PBGC-related issues and post-closing benefit plan and compensation structures and integration.

Andrea also advises clients on compliance with ERISA, the Internal Revenue Code, and other laws affecting employee benefit plans, as well as plan design, administration, termination, fiduciary duty issues, prohibited transactions, qualification requirements and other matters concerning pension, profit-sharing, employee stock ownership, 401(k), and other types of plans. She has extensive experience with respect to the legal consequences relating to the use of employer stock in tax-qualified plans such as ESOPs, profit-sharing, stock bonus and pension plans.

Andrea has been lauded by various legal rankings directories, including Chambers USA and Legal 500, noting that her “depth of knowledge and involvement in this practice area, [including] the business and trends, is terrific.” She is also recognized for having an “excellent understanding of the business community” and for being “pro-active in keeping clients up to date.” She writes and lectures frequently on employee benefits and executive compensation matters and is a co-editor and chapter author of Executive Compensation (Law Journal Press). Since 1993, she has served as an adjunct professor on the faculty of Cornell University (New York State School of Industrial & Labor Relations-Management Programs). Andrea is also active in Proskauer’s relationship with the Women Corporate Directors (WCD), the only global membership organization of its kind focused on helping women obtain and succeed in board positions.