Effect of the Sarbanes-Oxley Act on Incentive Plans

Human Resource Management
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Human Resource Management
Sarbanes-Oxley (SOX) Act
The Sarbanes-Oxley Act (SOX) refers to the U.S. legislation that is meant to protect the general public and shareholders from fraudulent practices and accounting errors among companies and enhance corporate disclosures’ accuracy. Since its introduction, the Act has resulted in various changes regarding the regulation of corporate governance as well as financial practice. The current managers who fail to adopt the Sarbanes-Oxley Act in terms of ethical business management faces a legal risk. The Act obliges the chief financial officers (CFOs) and Chief executive officers (CFOs) to certify the financial statements of their respective companies and to ensure that they have implemented adequate internal controls (Dessler, 2013). In other words, managers are required to their companies’ employees have adopted ethical business practices. This can be achieved by providing ethics training to all the employees. In addition to providing the employees with ethics training, managers ought to ensure that such employees have really undergone the training. Thus, the Act mandates the management to play a key role in establishing ethical practices in the public companies in order to improve their corporate governance.
Effect of Sarbanes-Oxley Act on Incentive Plans
The adoption of Sarbanes-Oxley Act, among companies, has resulted in a significant impact on their incentive plans as such companies strive to avoid the legal risk of non-compliance while enhancing their corporate governance environments. For instance, most companies have adopted accounting software solutions which document, standardize, and automate business processes associated with channel compensation and sales (Dessler, 2013). In light of this, accounting models enhances the transparency of f...