The boards of Australian companies with securities listed on the New York Stock Exchange (NYSE) and Nasdaq Stock Exchange (Nasdaq) have a further regulatory burden. The Securities and Exchange Commission (SEC) has directed the exchanges to prohibit the listing of companies that do not develop and implement a clawback or incentive award recovery policy. Such clawback or incentive recovery policies are intended to ensure executives are held accountable for fraud or serious misconduct and required to repay incentive awards.

Clawback policies are not to be confused with malus policies. A malus policy and provision in incentive plans enables the lapsing or forfeiture of unvested incentives.

The change comes following an amendment within the Dodd-Frank Wall Street Reform and Consumer Protection Act, adding section 10D to the Securities Exchange Act of 1934. The addition requires the SEC to “direct the national securities exchanges and associations that list securities to establish listing standards that require each issuer to develop and implement a clawback policy” (See HERE ).

The NYSE and Nasdaq have finalised amendments to their listing rules to incorporate the new rule in July 2023, with SEC approval.

The newly adopted sections of the NYSE and Nasdaq’s listing rules that enable them to delist companies that do not comply with the requirement to implement the clawback policies can be found HERE and HERE.

Both exchanges’ new rules apply from 2 October 2023.

ASX-listed and NZ-listed companies that are also listed on the NYSE or Nasdaq exchanges should be aware of the new change. While it is becoming more popular for Australian companies to adopt clawback policies, it is not yet an ASX requirement.

ASX Corporate Governance Council Recommendation 8.2 regarding remuneration policy disclosures recommends including a summary of “reduction, cancellation or clawback” policies if companies have them. See HERE.

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