Mar. 26, 2023
My apologies. In my previously submitted comment letter with respect to the NYSE listing standards to implement Exchange Act Rule 10D-1 (including the attachment), I missed an issue that I think will make it a challenge for a listed company or the applicable exchange on which the company's class of securities is listed for trading to properly apply or enforce, respectively, Exchange Act Rule 10D-1. The following example is intended to highlight what appears to be an inconsistency in Exchange Act Rule 10D-1(b)(1)(i)(A) and (B) and the penultimate sentence of Section II.C.1.c of the SEC's adopting release. Company A is an Exchange-listed company for all relevant periods in this example. Company A's fiscal year is coincident with the calendar year. In fiscal year 2024 (FY2024), Company A grants an incentive-based compensation award to a grantee who is not then an executive officer. The award has a four-year performance period that runs from the beginning of FY2024 until the end of FY2027. If the financial reporting measure to which 100% of the award's potential payout is subject to attainment is satisfied, the grantee of the award will receive the incentive-based compensation on 12-31-2027. On January 1, 2025, the grantee becomes an executive officer of Company A and serves in that capacity for one year (i.e., FY2025) and then again beginning in FY2029. On May 1, 2029, Company A becomes required to prepare an accounting restatement, with the restatement having a negative impact on the financial reporting measure to which the award in question was subject to attainment. Given this date, the compensation recovery period specified in Exchange Act Rule 10D-1(b)(1)(i)(D) is the three fiscal year period of FY2026-2028. On these facts, the amount of erroneously awarded incentive-based compensation received by the grantee under this award is subject to recovery under Company A's Exchange-mandated compensation recovery policy even though the award was granted prior to the grantee becoming an executive officer of Company A. The grantee received the incentive-based compensation after the grantee began service as an executive officer of the company, thus satisfying Exchange Act Rule 10D-1(b)(1)(i)(A). Further, the grantee served as an executive officer for a portion of the award's four fiscal year performance period (i.e., during FY2025), thus satisfying Exchange Act Rule 10D-1(b)(1)(i)(B). But see the penultimate sentence in Section II.C.1.c of the adopting release, which reads as follows: "We further note that the recovery requirement also does not apply to an individual who is an executive officer at the time recovery is required if that individual was not an executive officer at any time during the period for which the incentive-based compensation is subject to recovery." In the example, the grantee is not an executive officer at any time during the compensation recovery period specified in Exchange Act Rule 10D-1(b)(1)(i)(D) (i.e., FY2026-FY2028). Nonetheless, the grantee would appear covered by Exchange Act Rule 10D-1(b)(1)(i)(A) and (B) - regardless of whether the grantee is serving as an executive officer as of the date Company A is required to prepare an accounting restatement within the scope of Exchange Act Rule 10D-1. Exchange Act Rule 10D-1(b)(1)(i)(A), (B), (C) and (D) are very poorly constructed given the lead-in text of Exchange Act Rule 10D-1(b)(1). The syntax is flawed. In any event, only (A) and (B) apply to an individual; (C) and (D) apply to the issuer. Further, Exchange Act Rule 10D-1(b)(1)(i) should begin with the following for internal consistency within the rule: "Subject to Exchange Act Rule 10D-1(a)(3)(ii), the issuer's recovery policy.... Don Meiers