44 What is a clawback? A clawback is the recovery of erroneously awarded incentive-based compensation received by current or former executive officers of an issuer. What is “incentive-based compensation”? The clawback rules define “incentive-based compensation” as “any compensation that is granted, earned, or vested based wholly or in part upon the attainment of any financial reporting measure… any incentivebased compensation recovered under the final rules is compensation that an executive officer would not have been entitled to receive had the financial statements been accurately presented.” Incentive-based compensation includes compensation that is granted, earned or vested based wholly or in part upon the attainment of any financial reporting measures that are determined and presented in accordance with the accounting principles used in preparing the issuer’s financial statements and any measures derived wholly or in part from such measures, as well as non-GAAP measures, stock price and total shareholder return. Incentive-based compensation does not include: base salary; bonuses paid solely at a board or board committee’s discretion that are not paid from a “bonus pool” determined by the satisfaction of a financial reporting measure performance goal; bonuses paid upon achievement of subjective standards and/or completion of a specified employment period; nonequity incentive plan awards earned solely upon achievement of strategic or operational measures; and equity awards that are subject only to timebased vesting conditions and/or satisfying one or more subjective, strategic or operational measures that are not financial reporting measures. Do FPIs have to comply with the new rules? Yes. Issuers (including smaller reporting companies, emerging growth companies, FPIs, controlled companies, and issuers of debt and non- equity securities) whose securities are listed on a national securities exchange other than issuers of security futures products, standardized options, unit investment trust securities and certain registered investment company securities are subject to the new rules.