- The SEC said Thursday that efforts to crack down on Wall Street bonuses resume when companies report inaccurate financial information.
- Wall Street’s top regulator announced it would renew efforts to draft rules that would roll back executive pay as a penalty for misreporting.
- “I believe we have an opportunity to strengthen the transparency and quality of corporate financial statements as well as the accountability of corporate executives to their investors,” SEC Chairman Gary Gensler said in a press release. “
The Securities and Exchange Commission said Thursday that efforts to crack down on Wall Street bonuses are restarting when companies report inaccurate financial information.
Wall Street’s top regulator announced that it would renew efforts to draft rules that would roll back executive pay as part of long-stalled rules mandated under the historic Dodd-Frank Act.
Wall Street executives are often paid based on how their company performs on key business metrics, including net sales, customer growth, vehicle shipments or earnings per share.
“Sometimes, however, the numbers that companies report as the basis for that compensation are not accurate,” SEC Chairman Gary Gensler said in a statement. “In these cases, companies may have to go back and revise or restate prior financial reporting. As a result, an executive may be paid to meet certain milestones, which the company may actually be paying for. I didn’t get hit.”
American companies have awarded long-term cash and stock incentives to CEOs for decades who may not pay off for years. Those incentives are designed to keep the focus on growing the business year-over-year with the promise of a bigger windfall down the road.
However, the annual bonus is usually not deferred and is often withdrawn in cash at the beginning of the new year. The size of those bonuses fluctuates based on financial data that a company’s CEO or chief financial officer reports to the SEC as part of their quarterly earnings reports.
Currently, when the SEC finds errors in a company’s statements, corporate boards decide whether to punish the company’s top executives to recoup some of their compensation. The Dodd-Frank Act of 2010 accused the SEC of drafting new rules that would take away the board’s jurisdiction in such matters after the 2008 financial crisis.
First published by the SEC Its proposed changes in 2015, a collection of penalties that would force companies to penalize accounting errors by “paying back” from a wider collection of executives.
That offer has teeth: Failure to do so could cost the company its stock listing. Regulators hoped the dire consequences would discourage fraud and excessive risk-taking.
Now, after another multi-year delay, the SEC is picking up where it left off and is seeking public input on those rules for 30 days. The regulator may go ahead with the proposed rule changes after the comment period, but it did not provide a timeline for ending the long-delayed rules.
“I support today’s action to reopen the commentary on the Dodd-Frank Act rule with respect to the incentive-based executive compensation clause,” Gensler added in a press release. “I believe we have an opportunity to strengthen the transparency and quality of corporate financial statements, as well as strengthen the accountability of corporate executives to their investors.”
According to Institutional Shareholder Services, the vast majority of S&P 500 companies already have clawback provisions, which advise companies on governance policies.
The SEC, one of several government agencies that must sign off on the rule change, did not respond to questions about CNBC’s potential timeline or input received from fellow financial regulators.