ML BeneBits

When private equity investment transactions close, management and private equity investors are off to the races—generally aligned on strategic and financial objectives. However, as market conditions and the economic climate shift, key parties may become misaligned and management incentive plans (MIPs) could become underwater or ineffective.

On October 26, 2022, the US Securities and Exchange Commission (SEC) announced the adoption of its new rules directing national securities exchanges, including the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq), to establish listing standards for compensation recovery (clawback) policies. In accordance with the SEC’s clawback rule, both the NYSE and Nasdaq submitted their clawback proposals to the SEC on February 22, 2023. This blog post offers guidance on compliance and implementation deadlines pursuant to these proposals, as well as what public companies need to do in the coming months to ensure timely adoption.

The Federal Trade Commission (FTC) announced a notice of proposed rulemaking on January 5, 2023, that would ban employers from entering into or maintaining noncompete clauses with their workers. The proposal was issued in response to President Joseph Biden’s July 9, 2021 executive order and related statements calling on the FTC to ban or limit employment contract restrictive covenants that restrict workers’ freedom to change jobs. See our LawFlashes discussing the proposal and frequently asked questions.

Equity-based awards are often a significant element of a company’s compensation program. However, unlike more broad-based employee benefit programs, which are generally only subject to federal laws, equity-based compensation arrangements are, in most cases, subject to both federal (for example, the Securities Exchange Act of 1934, as amended (Exchange Act)) and state laws. Individual state laws generally govern the formation and operation of both private and public corporations and other business entities that are organized in their state. The corporate governance provisions of such state laws typically govern certain aspects of executive compensation arrangements including who has the authority to grant equity awards.