The Securities and Exchange Commission (SEC) voted last month to adopt a new rule that requires public companies whose financial statements contain errors to recover from executive officers erroneously rewarded incentive-based compensation.
The so-called “clawback” rule being pushed by the SEC is geared towards improving corporate accountability for accounting errors, whether they are the result of fraud or simple accounting mistakes, during a time of rising shareholder dissatisfaction over pay practices for executives.
“I believe that these rules will strengthen the transparency and quality of corporate financial statements, investor confidence to those statements, and the accountability of corporate executives to investors,” said SEC Chair Gary Gensler. “Corporate executives often are paid based on the performance of the companies they lead, with factors that may include revenue and business profits. If the company makes a material error in preparing the financial statements required under the securities laws, however, then an executive may receive compensation for reaching a milestone that in reality was never hit.”
Click here to read the full press release by the SEC.
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