Sarbanes-Oxley Act and Incentive Compensation Management:What Sarbanes-Oxley Means for the Future and How Companies Can Prepare for it Now
"Since Sales and Cost of Sales can have a significant impact on a company’s statement of earnings, incentive compensation management comes into focus as a business process with strong exposure for companies that are actively seeking to reduce their risk of Sarbanes-Oxley non-compliance."
Companies have many concerns and questions about the Sarbanes-Oxley Act of 2002 — and well they should. It's been described as the most sweeping piece of legislation to impact corporate disclosure, governance and accounting since the Securities Act of 1934. Not surprisingly, the 66-page law is difficult to understand and interpret, and offers few guidelines for compliance.
This Callidus Software white paper offers a general explanation of the Sarbanes-Oxley Act, and what it requires in terms of financial disclosures. It also explains the value of automated compensation management as part of a comprehensive program of internal process control, and testing and monitoring of these controls.
Because incentive compensation can involve millions of dollars on corporate balance sheets, reporting it with razor-sharp accuracy is critical to accurate statements of earnings. Companies without sophisticated, computerized controls over their compensation processes are open to significant exposure if they are audited under Sarbanes-Oxley rules.
Unfortunately, most companies spend a good deal of money on compensation pay for employees and business partners, but do a poor job of monitoring, auditing and controlling these expenditures. In addition, studies show that companies doing a poor job of managing incentive pay typically overpay commissions by 3-10% —a loss of value to shareholders.
Many companies are worried about the costs associated with compliance with Sarbanes-Oxley. They fear that their auditing bills will double, and wonder if the cost justifies the means. One CEO attending the January 2004 World Economic Forum in Davos, Switzerland put it this way: "Corporate America is spending an awful lot of money on internal controls that are not benefiting shareholders."
The white paper details the process controls that are built in to TrueComp, and how the Callidus Software EIM solution provides the data transparency that CFOs need to comply with Sarbanes-Oxley. It also outlines the crucial role of the company CFO in establishing tighter process controls — and why compensation management must now be a corporate governance priority for all CFOs.
