Supporting Sarbanes Oxley Initiatives with Compensation Management

Regulatory changes and public litigation have underscored the importance of compensation clarity. Insurers can address a variety of incentive and commission issues with compensation management systems

Introduction

The Sarbanes-Oxley Act was signed into law on July 30th 2002, and introduced highly significant legislative changes to financial practice and corporate governance regulation. It introduced stringent new rules with the stated objective: "to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws".

Provisions of the Sarbanes Oxley Act (SOX) detail criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. This fear of penalties sent corporate leaders scrambling to meet compliance requirements. It affects all the public U.S. companies and non-U.S. companies with a U.S. presence. SOX is all about corporate governance and financial disclosure. In dealing with compliance issues corporate America is determining what new technology and enhancements to systems will be required.

The Role of Incentive Compensation Systems

The main impact of Sarbanes-Oxley falls on the CEO and CFO. Section 302 - Corporate Responsibility for Financial Reports states that the CEO and CFO must review all financial reports to make sure that they do not contain any misrepresentations and that information is "fairly presented". It made them responsible for internal accounting controls, deficiencies or fraud in internal accounting controls and anything requiring material changes in internal accounting controls. Insurers have historically been tasked with financial reporting, but many problems arose when those historical systems based on spreadsheets, paper processes, and legacy infrastructures tried to meet the comprehensive demands of SOX.

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