Better Markets filed a Comment Letter to the Securities and Exchange Commission (SEC) in response to the agency’s proposed rule on Standards for Recovery of Erroneously Awarded Compensation:

Why It Matters.  We know that major contributors to the 2008 financial crisis were executive compensation policies that incentivized financial firms and others to engage in accounting fraud or manipulation and high-risk business strategies to bulk up revenues and justify inflated salaries and bonuses.  That put companies, clients, and investors at heightened risk once the financial system began to unravel.

The SEC’s rule will help curb these abuses by disincentivizing them.  It will require companies to recover excessive compensation paid to executives as a result of the errors that led to an accounting restatement.

What We Said. In our comment letter, we respond to the SEC’s request for additional input in light of new data on the types of accounting restatements that should trigger a compensation recovery analysis.  That data confirms our view that the rule should be framed broadly so that a wide range of accounting restatements trigger the claw back rule, including the so-called “little r” revision restatements.  Otherwise, companies will game the system, evade the rule requirements, and undermine the clear purposes of the law.

Bottom Line. We urge the SEC to move forward and finalize the rule, broadly written, to help safeguard our markets and our economy from executive compensation and accounting practices that create dangerous systemic risks.”

Read our full Comment Letter here or click the button below.