What Is a Clawback Provision in Executive Compensation?

A clawback provision is a rule or contract term that lets a company recover compensation it has already paid an executive, usually bonuses or equity tied to performance, when a triggering event happens, such as a financial restatement or misconduct. For companies listed on the NYSE or Nasdaq, clawbacks are mandatory: under SEC Rule 10D-1 and exchange rules in effect since Oct. 2, 2023, each listed company must have a written policy to recover incentive-based pay that was overpaid because of an accounting restatement, from current and former executive officers, for the three completed fiscal years before the restatement, whether or not the executive was at fault. Private companies and individual employment or equity agreements can add broader clawbacks by contract.

At a glance

Sources: 17 CFR 240.10D-1 (eCFR); SEC Release No. 33-11126; 15 U.S.C. 7243. Checked Oct. 24, 2026.

Why clawbacks exist

Congress added Section 10D to the Securities Exchange Act in the Dodd-Frank Act of 2010 (Section 954). It told the SEC to make the stock exchanges require listed companies to adopt and enforce recovery policies. The SEC adopted Rule 10D-1 on Oct. 26, 2022; it took effect Jan. 27, 2023, and the NYSE and Nasdaq rules took effect Oct. 2, 2023.

The idea, in the SEC's words, is that an executive "should not retain incentive-based compensation that, had the issuer's accounting been correct in the first instance, would not have been received by the executive officer, regardless of any fault of the executive officer for the accounting errors."

How the mandatory SEC clawback works

Who is covered. "Executive officers": the president, principal financial officer, principal accounting officer (or controller), any vice president in charge of a principal business unit, division or function, and any other officer or person who performs a policy-making function. Former executive officers are covered too.

What pay is covered. Incentive-based compensation is pay that is "granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure." That includes measures such as revenue or earnings, and stock price and total shareholder return (TSR). SEC examples include:

• annual bonuses and other cash awards tied to a financial goal;
• bonuses paid from a pool sized by a financial goal;
• restricted stock, RSUs, performance shares, stock options and SARs that are granted or vest based on a financial goal;
• proceeds from selling shares acquired through such awards.

What isn't covered. The SEC's examples include:

• salary (unless a raise was earned based on a financial goal);
• purely discretionary bonuses, or bonuses based only on subjective goals or length of service;
• awards earned only on strategic or operational goals (for example, completing a merger or opening a set number of stores);
• equity that vests only with time or on non-financial goals.

What triggers recovery. The rule covers both kinds of restatement:

• "Big R" restatements, which correct an error that is material to previously issued financial statements;
• "little r" restatements, which correct an error that would be material if left uncorrected or corrected only in the current period.

The lookback. The policy reaches incentive pay received during the three completed fiscal years immediately before the date the company is required to prepare the restatement. That date is the earlier of:

• when the board (or authorized officers) concluded, or reasonably should have concluded, that a restatement is required; or
• when a court, regulator or other legally authorized body directs the company to restate.

Pay counts as "received" in the fiscal period when the financial goal was attained, even if it's paid or granted later. The duty to recover doesn't depend on whether or when the restated statements are filed.

How much. The amount is the incentive pay received above what would have been paid under the restated numbers, calculated without regard to taxes paid. For stock-price or TSR awards, where the effect can't be calculated directly, the company uses a reasonable estimate and must document it for the exchange.

Few exceptions. Recovery must happen "reasonably promptly." The board's independent compensation committee may decide recovery is impracticable only if:

• enforcement costs paid to third parties would exceed the amount recovered, and the company has made and documented a reasonable attempt to recover;
• recovery would violate a home-country law adopted before Nov. 28, 2022, supported by a legal opinion; or
• recovery would cause a broad-based, tax-qualified retirement plan to fail IRS requirements.

No indemnification. A listed company may not indemnify a current or former executive officer against the loss of clawed-back pay.

Disclosure. Listed companies must file the policy as Exhibit 97 to the annual report. The annual report cover page carries check boxes showing whether the financial statements correct an error and whether that required a recovery analysis. Item 402(w) of Regulation S-K requires details when a recovery is triggered. A company that doesn't adopt, disclose or enforce a compliant policy can be delisted.

The older clawback: Sarbanes-Oxley §304

Section 304 of the Sarbanes-Oxley Act (15 U.S.C. 7243) still applies alongside Rule 10D-1. If a public company must restate because of material noncompliance "as a result of misconduct," the CEO and CFO must reimburse:

• any bonus or other incentive- or equity-based pay received in the 12 months after the misstated document was first issued or filed; and
• any profits from selling company stock during those 12 months.

Only the SEC enforces §304, and it can grant exemptions.

Contractual clawbacks (including private companies)

Rule 10D-1 applies only to companies with listed securities. Any company can still put clawback terms into:

• employment and executive agreements;
• equity-award, option and incentive-plan documents;
• severance and separation agreements;
• LLC operating agreements or partnership agreements (for example, forfeiting profits interests for a breach).

Typical triggers include:

• termination for cause or misconduct;
• breach of a non-compete, non-solicit or confidentiality covenant;
• a restatement, even at a private company;
• violation of a company code of conduct.

Many listed companies also adopt policies that go further than the SEC minimum, for example covering misconduct without a restatement. Whether a contractual clawback can be enforced depends on its wording and on state law, including wage-payment laws in some states. Have a lawyer review the clause before you sign or enforce it.

What's changing (Oct. 2026)

Rule 10D-1 hasn't been amended since it took effect. The SEC has a separate project to revise executive-pay disclosure under Item 402 of Regulation S-K. A draft went to the White House for review on Aug. 26, 2026, but as of Oct. 23, 2026 the SEC hadn't published a proposal. Any change would have to go through notice and comment before it took effect.

Questions to ask before you sign (executives)

1. Which clawback policy applies to me: the company's Rule 10D-1 policy, a broader company policy, my own agreement, or all three?
2. Which parts of my pay are "incentive-based" under the policy, and which (salary, time-vested equity, discretionary bonus) are not?
3. What triggers a clawback beyond a restatement: misconduct, cause, covenant breaches?
4. How is the amount calculated for stock-price or TSR awards, and how is recovery collected (repayment, forfeiture, offset against future pay)?
5. Does my severance or separation agreement release or limit any clawback rights? (A listed company can't waive the Rule 10D-1 policy.)
6. Is there insurance or indemnification, and what does the policy allow?

Questions boards and general counsel should ask

1. Does our policy cover every current and former executive officer, including those at a parent or subsidiary who make policy for us?
2. Do our award agreements and plan documents let us recover, forfeit or offset pay as the policy requires?
3. How will we estimate the effect of a restatement on stock-price and TSR awards, and how will we document it?
4. Are our Exhibit 97 filing and cover-page check boxes in order?

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• What is corporate governance?
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• What is shareholder oppression?
• What is securities fraud?

This page is general information, not legal advice. Clawback obligations depend on your company's listing status, its policies and the agreements you signed; consult a licensed corporate or employment attorney about your situation.