45 What should a clawback policy include? Issuers are required to adopt a clawback policy providing for recovery of incentive-based compensation erroneously received by current or former executive officers during the three completed fiscal years immediately preceding the year in which the issuer is required to prepare an accounting restatement due to material noncompliance with financial reporting requirements. Incentive-based compensation is considered to be received in the period during which the applicable reporting measure is attained, even if the payment or grant occurs after the end of that period. If an award is subject to both time-based and performance-based vesting conditions, it is considered received upon satisfaction of the performance-based conditions, even if the award continues to be subject to time-based vesting conditions. Erroneous payments must be recovered even if there was no misconduct or failure of oversight on the part an individual executive officer. The rules apply to both “Big R” and “little r” restatement filings: • A “Big R” restatement is when an issuer is required to prepare an accounting restatement that corrects an error in previously issued financial statements which is material to the previously issued financial statements. • A “little r” restatement corrects an error that would result in a material misstatement if the error was not corrected in the current period or was corrected in the current period and generally does not require a special disclosure filing. • What are the new disclosure requirements? • An issuer is required to file its clawback policy as an exhibit to its annual report on Form 10-K, Form 20-F or Form 40-F. An issuer is required to disclose in its annual report or proxy statement how it has applied its clawback policy including: • the date on which the issuer was required to prepare an accounting restatement and the aggregate dollar amount of erroneously awarded incentive-based compensation attributable to such accounting restatement;
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