SEC Clawback Provisions Could Impact Canada

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    Clawback provisions now proposed by the Securities and Exchange Commission (SEC) in the U.S. could have an impact in Canada, says John Prezioso, a partner at Hicks Morley. In the ‘Clawback of Executive Compensation’ session at its ‘Pension, Benefits, and Executive Compensation: Planning Today for Tomorrow’ event, he said clawbacks have become more popular as a result of the failure of companies like Enron and WorldCom in the early 2000s and practices in the 2008 and 2009 financial crisis where executives walked away from failing companies with huge payouts. While there is no requirement under Canadian law for companies to impose clawbacks, it is estimated that about three-quarters of companies listed on the S&P/TSX 60 have a policy in place. However, the SEC is proposing even tougher standards with clawbacks triggered by a single event ‒ a material restatement of a company’s financial statement. It also wants to apply the requirement to a broad range of executive compensation and increase the ‘look back period’ from the current two years to three. It would also make clawback provisions mandatory and provide little access to efforts by executive to recover this compensation. Canadian companies listed on U.S. exchange could be compelled by the final SEC rules to adopt these provisions. Those not subject to SEC rules should consider them as a best practice. This may also result in increased use of clawbacks in Canada and broadened scope, he said.