The Securities and Exchange Commission (SEC) voted on Wednesday to adopt a new rule that would require public companies to recover executive compensation when their financial statements contain errors.
These “clawback” requirements are intended to hold corporate executives financially responsible for any reporting errors, whether the result of fraud or simple accounting errors.
The rule was imposed by Congress as part of the 2010 Dodd-Frank Act in response to the latest financial crisis, but has faced resistance from corporate leaders and Republican lawmakers, delaying implementation.
Last year, SEC Chairman Gary Gensler revived the initiative as part of his biggest crackdown on corporate misconduct.
SEC commissioners voted to pass the 3-2 rule on Wednesday, with all Democrats approving the plan and Republicans disagreeing.
“I believe that these rules, if adopted, would strengthen the transparency and quality of corporate financial statements, investor confidence in these statements, and corporate executives’ accountability to investors,” Gensler wrote in a statement ahead of the vote.
Leaders of large companies often receive most of their compensation from performance-based bonuses.
If companies report strong revenues and profits, they get paid more. Therefore, errors in the preparation of financial statements can have a major impact on executive compensation.
“Whether such inaccuracies are due to fraud, error or any other factor, current rules would implement procedures that require issuers to recover erroneously rewarded payment, a process known as ‘clawback,’” Gensler wrote.
The two Republican SEC commissioners, Hester Peirce and Mark Uyeda, voted against the rule and called it “overly broad.”
Source: CNN Brasil
Joe Jameson, a technology journalist with over 2 years of experience, writes for top online news websites. Specializing in the field of technology, Joe provides insights into the latest advancements in the industry. Currently, he contributes to covering the world stock market.
