By Sarah N. Lynch
WASHINGTON, July 1 (Reuters) - Public companies that re-state their financial results would be required to "claw back," or recover, any excess incentive compensation earned by their corporate executives under a new rule to be proposed on Wednesday by U.S. regulators.
The Securities and Exchange Commission's plan is expected to spark debate among the agency's five members, with some saying it goes too far and should not be applied to smaller-sized companies.
"The broad approach of today's proposal is likely to impose a substantial commitment of shareholder resources and, unintentionally, result in a further increase in executive compensation," SEC Republican Commissioner Mike Piwowar said in prepared remarks.
The proposed rule is one of a series of compensation-related measures required by the 2010 Dodd-Frank Wall Street reform law.
It would apply to public companies of all sizes and to any executive officer who performs policymaking decisions and who has received incentive compensation, including stock options.
Under Wednesday's plan, U.S. stock exchanges would need to incorporate the clawback requirements into their listing standards.
Companies would be required to recover any amount of incentive compensation that exceeds the amount an executive officer would have received based on the accounting restatement.
For compensation based on stock price or total shareholder return, the SEC said companies can use a reasonable estimate on the effect of the restatement. They would also have some discretion to decline to recover compensation, if the expense of doing so would exceed the amount recovered.
The 2002 Sarbanes-Oxley law already empowers the SEC to force chief executives and chief financial officers to reimburse their company for bonuses and other compensation if re-statements arise out of misconduct or failure to comply with the federal securities laws.
Wednesday's plan, by contrast, could trigger clawbacks even when misconduct is not at issue in a restatement. It also covers a broader swath of corporate executives, and requires the company, not the SEC, to recover the clawback.
In addition, the SEC's plan covers a three-year period from the date of a restatement, versus a one-year period in the Sarbanes-Oxley rule.
(Reporting by Sarah N. Lynch; Editing by Meredith Mazzilli)