Executive-Bonus Clawbacks Get Long-Delayed Approval From SEC

Corporate executives will have to pay back bonuses based on mistakes in their businesses’ financial reporting under a new rule from the U.S. Securities and Exchange Commission.

The SEC approved the long-stalled regulation, which was required by the 2010 Dodd-Frank Act, on Wednesday. The so-called clawback requirements are meant to hold corporate leaders accountable for the errors, whether they’re the result of fraud or simply mistakes.

Across Wall Street and major industries, executive compensation is often tied to firms’ financial performance, as described in their annual reports. Misstatements or errors can have a significant impact on business leaders’ bonuses, which often dwarf base salaries.

The regulations “build in greater incentives that senior executives look after the financials and make sure that they’re accurate,” SEC Chair Gary Gensler said during a press briefing after the agency’s vote to finalize the rule.

The agency’s two Republicans, Commissioners Hester Peirce and Mark Uyeda, voted against the measure, calling it “overly broad.” Peirce criticized the requirement for applying to too many public company employees, potentially as many as 50,000 people, she said.

Pay practices that rewarded quick deals and short-term gains were blamed for contributing to the 2008 financial crisis. Still, despite being required by Congress, the clawback rule languished for years at the SEC.