SEC Compensation Recovery Rule: Restatements and Related Clawbacks, Quarterly Update # 6
A quarterly review of compliance trends, SEC comment letters, and the complexities of recovery analysis
SEC Rule 10D-1 – often referred to as the compensation clawback rule — requires public companies to adopt policies to recover excess incentive compensation that was paid to current or former executives because it was based on metrics that were later restated. Created under the Dodd-Frank Act, the rule aims to reinforce accountability by requiring the recoupment of bonus or performance-based compensation tied to incorrect results, regardless of whether the error was caused by simple mistakes or misconduct. It applies to both material (“Big R”) and immaterial (“little r”) restatements.
The rule also adds disclosure requirements: companies have to flag on the cover page of their annual reports when the filing reflects corrections to past financial statements, explain whether and how they pursued recovery of excess compensation, and include their clawback policy as an exhibit to the annual report.
Key H1 2026 findings
The number of companies with an error correction flag declined to 142 in the first half of 2026, compared with 169 in the first half of 2025 (down 16% year over year) and 206 in the first half of 2024 (down 31% over two years).
The number of companies indicating that they performed a recovery analysis declined to 57 in the first half of 2026, compared with 70 in the first half of 2025 (down 19% year over year), but remained substantially above the 29 reported in the first half of 2024 (up 97%).
The number of companies providing recovery analysis disclosures declined sharply to 25 in the first half of 2026, down from 48 in the first half of 2025 (down 48% year over year), but remained above the 18 reported in the first half of 2024 (up 39%).
Clawbacks remained rare, with 4 companies disclosing compensation recoupment during the first half of 2026, compared with 6 in the first half of 2025 (down 33%) and 2 in the first half of 2024 (up 100%).
At the same time, several companies reported that their clawback analysis remained in progress. Four companies disclosed that their recovery analysis had not been completed by the filing date, compared with 2 in the first half of 2025 (up 100%) and none in the first half of 2024.
Figure 1 – Companies with error correction and recovery analysis boxes selected, H1 2026
Source: SEC filings, analysis by Deep Quarry.
Figure 2 - Companies with error correction and recovery analysis boxes selected, Q2 2026
(Note: company-level data underlying Figure 1 is available for premium subscribers of Deep Quarry.)
The first half of 2026 data continues to support the conclusion that the decline in Rule 10D-1 disclosures largely tracks a broader slowdown in restatement activity rather than reflecting a fundamental change in how companies apply the clawback rule. The number of companies checking the error-correction box declined from 169 during the first half of 2025 to 142 during the first half of 2026. Importantly, the decline is primarily attributed to the first quarter. In contrast, second-quarter activity was broadly comparable year over year, with 39 companies reporting an error correction in Q2 2026 versus 40 in Q2 2025.
As discussed in my prior analysis, the elevated level of Rule 10D-1 disclosures during the 2024 filing season and the first quarter of 2025 was likely influenced by the Borgers-related re-audit wave, which required numerous issuers to replace audit reports and, in some cases, correct accounting errors identified by successor auditors. By the Q2 2025 filing season, however, most of those re-audits had been completed, and restatement activity appears to have returned closer to historical levels.
Investors continue to periodically see restatements resulting from re-audits of companies whose former auditors are no longer registered with the PCAOB (for instance, former clients of Olayinka Oyebola & Co). However, these appear to be isolated cases rather than a broad re-audit wave comparable to the one triggered by the BF Borgers enforcement action.
The comparable number of companies with the error correction box checked in Q2 2025 and Q2 2026 supports the hypothesis that the 2024 uptick was transitory, followed by a return to the mean.
Another factor that may have contributed to the decline in Rule 10D-1 disclosures is the slowdown in the SEC’s Division of Corporation Finance disclosure review program. As discussed in my prior analysis of amended Form 10-K filings, a subset of the 2025 restatements and related clawback assessments followed SEC comment letters challenging accounting judgments, disclosure decisions, or materiality conclusions.
The volume of publicly released SEC comment letters began to decline during the second quarter of 2025 amid reduced staffing levels at the Division of Corporation Finance, fell further during the second half of 2025 following the government shutdown, and remained below historical levels into 2026.
To the extent that SEC reviews identify accounting or disclosure issues that ultimately result in restatements, a sustained reduction in review activity could contribute to fewer restatements and, consequently, fewer Rule 10D-1 error-correction disclosures. (See the Perkins Coie memorandum summarizing SEC officials’ remarks at the SEC Speaks 2026 conference regarding the effects of staffing reductions and the government shutdown on the Division’s Disclosure Review Program.)
Recovery analysis
The first-half 2026 data suggests that companies continue to apply the Rule 10D-1 disclosure framework inconsistently. Among the 142 companies reporting an error correction during the first half of 2026, only 57 (approximately 40%) indicated that a recovery analysis was required, compared with 70 of 169 companies (approximately 41%) during the same period in 2025 and 29 of 206 companies (approximately 14%) in the first half of 2024. The second quarter data points to a similar pattern: 18 of 39 companies (46%) reporting an error correction in Q2 2026 indicated that a recovery analysis was required, compared with 20 of 40 companies (50%) in Q2 2025 and 11 of 74 companies (15%) in Q2 2024.
Rule 10D-1 generally requires companies to evaluate whether current or former executive officers received erroneously awarded incentive-based compensation during the applicable three-year lookback period whenever a financial restatement occurs, regardless of whether any compensation was ultimately recoverable. While the proportion of companies indicating that a recovery analysis was required has remained relatively stable since 2025, it remains substantially higher than in 2024, suggesting that registrants have become more likely to identify and disclose when the rule requires a recovery analysis. At the same time, a significant percentage of companies reporting error correction on the cover page still do not indicate that such an analysis was required, suggesting that Rule 10D-1 implementation and disclosure practices continue to vary across registrants.
A similar pattern emerges for narrative recovery analysis disclosures. Such disclosures declined from 48 companies in the first half of 2025 to 25 in the first half of 2026 (a 48% decline) but remained above the 18 reported during the first half of 2024. The quarterly data points in the same direction: recovery analysis disclosures decreased from 13 companies in Q2 2025 to 9 in Q2 2026, compared with 5 in Q2 2024. These figures should be interpreted with caution, however, because the timing of the disclosure is driven in part by a company’s proxy filing schedule. While some registrants include the required Rule 10D-1 recovery analysis in their Form 10-K, others incorporate the disclosure by reference from a definitive proxy statement that may not be filed until several months later. As a result, a portion of the apparent decline may reflect differences in filing timing rather than differences in companies’ recovery analyses or disclosure practices.
Clawbacks
A broad increase in mandatory clawbacks under SEC Rule 10D-1 is unlikely. Most financial restatements continue to take the form of “little r” revisions that correct relatively minor errors and generally should not affect executive incentive compensation.
Nevertheless, the relatively small number of cases in which an immaterial restatement results in a clawback warrants closer attention. Although a no-fault recovery following a “little r” correction does not, by itself, indicate misconduct or aggressive financial reporting, it may signal that executive incentive plans are built around ambitious performance targets, where relatively small changes in reported financial results can materially affect payout outcomes. Such compensation structures can better align executives’ interests with those of shareholders by rewarding the achievement of demanding goals. At the same time, they may also increase incentives for aggressive business practices, optimistic accounting judgments, or greater risk-taking in pursuit of those targets.
