1. Start the Clawback Review When a Restatement Is Required
The first question is not who caused the error. The company should decide whether the restatement triggers its Rule 10D-1 policy, then set the recovery period.
Identify the Restatement Trigger
The policy covers an error material to prior financial statements. It also covers an error that would cause a material misstatement if corrected, or left uncorrected, in the current period.
- Fix the date when the company concluded, or reasonably should have concluded, that a restatement was required.
- Check whether a court, regulator, or other authorized body directed the restatement.
- Do not wait for the restated statements to be filed before starting the clawback review.
Set the Recovery Period
The policy generally reaches incentive pay received during the three completed fiscal years before the restatement determination date. A fiscal-year change may add a transition period.
- Set the determination date before calculating the lookback.
- Match award and performance periods to the covered fiscal years.
- Use a corporate governance review to align board and committee duties.
2. Find the Executives and Awards Subject to Recovery
A restatement does not make every payment recoverable. The company must identify covered current and former executive officers, then decide which awards qualify as incentive-based compensation.
Determine Which Executive Officers Are Covered
Rule 10D-1 is not limited to the CEO and CFO. Other officers with policy-making functions can be covered when the rule's service, listing, performance-period, and timing conditions are met.
- Look beyond titles to policy-making duties.
- Include former officers when covered pay falls within the recovery period.
- Do not make fraud, fault, or misconduct a condition of recovery.
Separate Incentive Pay from Other Compensation
Covered pay is granted, earned, or vested wholly or partly upon a financial reporting measure. Stock price and total shareholder return count as financial reporting measures.
- Check performance bonuses and performance-based equity.
- Trace each award to the measure that set payment or vesting.
- Consider related securities regulation duties before disclosure.
3. Calculate the Erroneously Awarded Compensation
The recoverable amount generally equals the excess received over what the executive would have received using the restated results. The company calculates that amount without regard to taxes paid.
Recalculate Awards Tied to Financial Results
When direct recalculation is possible, the corrected financial measure supplies the starting point. The company then compares that result with the compensation actually received.
- Recalculate the affected measure with the restated information.
- Find the excess caused by the erroneous result.
- Calculate recovery on a pre-tax basis.
Handle Stock Price and Tsr Awards Separately
Stock-price and TSR awards may not allow direct recalculation. The company must then make a reasonable estimate of the restatement's effect and keep support.
| Award Basis | Approach | Record |
|---|---|---|
| Financial metric | Restated results | Calculation |
| Stock price | Reasonable estimate | Method and assumptions |
| TSR | Reasonable estimate | Method and assumptions |
4. Pursue Recovery Unless a Limited Exception Applies
Once the company identifies excess compensation, recovery is not simply a board preference. Exchange standards call for reasonably prompt recovery unless a permitted impracticability exception applies.
Choose a Recovery Method and Keep a Record
The method should fit the award and the company's policy. The record should show the amount due, collection steps, and the committee's decision.
- Consider repayment, cancellation, forfeiture, or another lawful method.
- Document the amount due and recovery efforts.
- Do not indemnify an executive for the loss of erroneously awarded compensation.
Use Impracticability Exceptions Narrowly
Exchange standards allow only limited exceptions. These can involve excessive third-party recovery cost, qualifying home-country law, or specified tax-qualified retirement-plan effects.
- Make a reasonable recovery attempt before relying on enforcement cost.
- Obtain the required legal opinion before relying on qualifying home-country law.
- Follow the exchange procedure before declining recovery.
5. Match the Board Record to the Sec Filing
The work does not end when the repayment figure is set. Committee records and SEC disclosure should reflect the same facts and amounts.
Prepare the Required Disclosure
The recovery policy must be filed as an annual-report exhibit. When the disclosure rules apply, the filing must also address the restatement and the resulting recovery analysis.
- Check the annual-report restatement boxes and required disclosures.
- Report required recovery amounts and outstanding balances.
- Apply required Inline XBRL tagging to covered disclosure.
Leave a Clear Committee Record
Committee minutes should match the calculations, collection efforts, and filing. State corporate law may govern board authority and process, but it does not replace Rule 10D-1 or the exchange standard.
- Preserve the restatement decision and compensation calculations.
- Record the basis for any permitted impracticability finding.
- Use an SEC compliance review before finalizing filings.
6. Frequently Asked Questions
Does an executive need to commit misconduct for Rule 10D-1 to apply?
No. Recovery does not depend on whether the executive caused the error, joined misconduct, or knew that a restatement would be required.
Can a smaller accounting error still trigger a clawback review?
Yes. A qualifying restatement can include an error that would cause a material misstatement if corrected, or left uncorrected, in the current period even if the prior-period error was not material.
Can an employment agreement prevent a required clawback?
No private compensation agreement can override the issuer's duties under Rule 10D-1 and the applicable exchange standard. Existing agreements should be checked against the policy.
What if the company does not follow its clawback policy?
Rule 10D-1 works through exchange listing standards. Failure to adopt and follow the required policy or make required disclosures can create listing-compliance consequences.
7. Review Sec Clawback Compliance with Sjkp
A public company corporate governance reform attorney in Manhattan can help move a restatement from accounting review to a defined recovery process. SJKP's attorneys can assess covered officers, pay calculations, recovery options, committee records, exchange rules, and SEC filings. Early review helps keep those decisions aligned as the company applies its clawback policy.
24 Aug, 2026
