Clawbacks in 2025: Current Landscape and New SEC C&DIs

Dodd-Frank clawbacks have been adopted by virtually every publicly traded company. However, they continue to pose intricate challenges involving technical compliance, regulatory oversight, and operational execution.

This article provides a brief overview of challenges companies faced during the first full year the Dodd-Frank clawback rules were in effect. It also analyzes the SEC’s Compliance and Disclosure Interpretations (C&DIs) issued on April 11, 2025, which provide guidance on issues the SEC has been most focused on.

Section 1: The State of Clawbacks in 2025—Lessons From the Trenches

Congress introduced the Dodd-Frank clawback rule with a straightforward goal. If a company restates its financials due to errors, officers should return any incentive-based compensation they received based on those incorrect numbers.

Dodd-Frank clawbacks cover both “Big R” restatements (material errors) and “little r” restatements (immaterial errors that could become material over time). The rule applies to incentive-based compensation, such as bonuses or stock awards, that are tied to financial metrics over the three years preceding a restatement.

As many companies have discovered, the simplicity of the concept belies the complexity of its execution.

Checkbox and Disclosure Coordination

Every 10-K now includes two checkboxes. One is to indicate that the financials include a restatement, and the other is to indicate that a compensation recovery analysis was performed. As SEC comment letters show, the most common pitfalls are checking that there was a restatement but not checking that a recovery analysis was performed, or checking both boxes on the 10-K but not providing the rationale behind the recovery analysis.

Beyond the very basic 10-K checkbox conundrum, there’s a multifaceted set of disclosure data that companies are required to provide in the proxy and even directly to the listing exchange. For examples of two relatively different, but similarly effective, proxy disclosures, see the ones from NCR Voyix and Katapult.

Clawback Exemptions

The exemptions available under the clawback rule have proven to be difficult to apply in practice. Of the three exemptions, the “impracticability” one showed the most potential given the likelihood that for many clawbacks, legal and other fees will far exceed whatever dollars are on the table.

However, our informal conversations indicate that the impracticability exemption is too vague to be useful. The standard requires companies to make a reasonable attempt to enforce the clawback before appealing to this exemption, but it’s not clear what a reasonable attempt is. Without that clarity, we expect to see very few companies using the exemption.

Pre-Tax Recoupment

What is clear is that clawbacks must be calculated on a pre-tax basis. Executives must return the full amount of erroneously awarded pay, even if they have already paid taxes on it. This issue is particularly thorny for multinational companies, where recouping taxes paid in foreign jurisdictions can be logistically and legally challenging.

These challenges are avoided if the affected executives haven’t sold the underlying shares. Some experts say this is a reason to adopt post-vest holding periods. We disagree. There are many good arguments for implementing a post-vest holding period, but the single-digit percentage chance of a restatement isn’t one of them. Instead, we suggest regularly communicating the recoupment implications to officers subject to Dodd-Frank clawback rules. That way, at least they’re informed.

Stock Price Reconstruction for Market Metrics

Companies with metrics related to their stock price or total shareholder return (TSR) have a unique challenge when it comes to recovery analysis. They have to reconstruct what the stock price should have been had the financials been accurate from the start. This process often involves sophisticated techniques like event studies.

As we’ve written, there’s not a universal way to estimate what the stock price would have been in the parallel universe. In our experience helping many companies in this area, it’s important to look at the overall context of the restatement and assess multiple best-of-breed financial tools. The standard of care isn’t to select the most pure, complex, or conservative method. Rather, it’s to use a reasonable approach.

Given the judgment required in reconstructing a stock price, these exercises are usually done under legal privilege. That gives the board, and counsel advising the board, the chance to ask questions openly so they can make an informed decision.

Investor Pressure to Go Beyond a Dodd-Frank Clawback

ISS and others are pushing for clawbacks under additional circumstances besides a financial restatement. Acts that create reputational harm and ethical breaches would be triggering events, for example. Many companies have already adopted dual frameworks, one for their mandatory Dodd-Frank clawback and another for discretionary recoveries. Those without such structures are likely to face increasing pressure from shareholders to expand their policies.

Building a Playbook

Developing a clawback playbook—a guide outlining roles, responsibilities, and procedures in the event of a restatement—can help companies respond swiftly and effectively when issues arise. This proactive step transforms a potential crisis into a manageable process.

Section 2: What the SEC Just Clarified—April 2025 C&DIs on Clawbacks

On April 11, the SEC issued five new C&DIs related to Dodd-Frank clawbacks. In the remainder of this article, we unpack C&DI Questions 104.20 through 104.25.

Question 104.20—When Must You Mark the Restatement Checkbox on the 10-K?

What it asks: How should companies determine whether a change to financial statements qualifies as a correction of an error, meaning they must check the restatement box?

SEC’s response: Look to GAAP. If the filing reflects a correction of an error to previously issued financials, the box must be marked, regardless of whether it’s a Big R or little r restatement. Consistent with all prior guidance, minor “out-of-period adjustments” that don’t revise prior financial statements are excluded.

Why this matters: Companies must exercise diligence in identifying and flagging all restatements. This ensures investors receive clear visibility into corrections, preventing little r restatements from being overlooked.

Question 104.21—Must You Check the Recovery Analysis Box Even if Nothing Is Clawed Back?

What it asks: If a restatement leads to a recovery analysis but no actual clawback, does the company still have to check the second box?

SEC’s response: Yes, the box must be marked, and companies must briefly explain why no recovery was required. We think a good example of such an explanation is the one Cardinal Health provided in a supplemental proxy filing.

Why this matters: Process transparency matters more than the outcome. The SEC is emphasizing that companies are accountable for documenting and disclosing their full analysis.

Question 104.22—Do You Repeat the Checkbox and Disclosures in the Following Year’s 10-K?

What it asks: If the next year’s 10-K includes restated financials from the prior year, do the boxes need to be checked again?

SEC’s response: No. The checkboxes don’t need to be re-marked. However, the next proxy statement must include disclosure under Item 402(w)(2) regarding the restatement and its compensation impact.

Why this matters: The guidance confirms the box-checking obligation is event-driven, not repeated annually.

Question 104.23—Is the 402(w) Disclosure Required Again the Next Year?

What it asks: If companies disclosed everything properly in year one, must they repeat it in year two?

SEC’s response: No, as long as there are no new facts.

Why this matters: This guidance offers flexibility with accountability. It reduces redundant reporting but requires companies to watch out for new developments that might alter the clawback analysis.

Question 104.24—What If The Restatement Was First Disclosed in a Filing Without a Checkbox?

What it asks: If a restatement was disclosed in a filing without a checkbox (e.g., in a Form 8-K that doesn’t have a checkbox on its cover), and that restated period later appears in a 10-K, must the box then be checked?

SEC’s response: Yes. Once restated numbers appear in a 10-K, the restatement checkbox must be marked.

Why this matters: This ensures the annual report serves as a comprehensive record of financial history, consolidating disclosures that may have originated elsewhere.

Question 104.25—What About Interim-Only Restatements?

What it asks: If a company restates only interim periods and not the annual financials, do they need to check the boxes or provide 402(w) disclosure?

SEC’s response: These interim restatements don’t require checkboxes on the annual report. But they still trigger disclosure obligations under Item 402(w) in the 10-K or proxy statement.

Why this matters: The scope of clawback oversight extends to quarterly corrections, ensuring that even interim errors are disclosed and evaluated, despite their limited annual impact.

Conclusion: Prepare, Don’t Wait

The clawback rule is now an active compliance topic with real regulatory and reputational consequences.

We continue to help companies with stock price reconstruction exercises while participating (with external legal counsel, the compensation committee, and appropriate members of management) in recovery analysis projects. As we do, we’ll share updates on emerging issues. For now, the SEC’s comment letters and C&DIs reinforce the importance of disclosure precision and transparency regardless of how small or irrelevant the restatement is.