Sarbanes-Oxley and Incentive Compensation Management

The Sarbanes-Oxley Act (better known as SOX, but officially known as the Public Company Accounting Reform and Investor Protection Act of 2002) requires companies to establish and maintain internal financial controls. One of the major provisions of SOX is that systems need to provide an archive or audit trail – which is something that spread¬sheets simply weren’t designed to do. As a result, companies that still use Excel for their sales compensation man-agement functions face major financial and legal exposure. CFOs and finance professionals need to ask themselves the following question: “Can we afford not to have a sales compensation management solution?”

Four years after the passage of the Sarbanes-Oxley Act, the practical implications for public companies are well un¬derstood. Aside from macro-level disclosures, certification, and audit requirements, at the business execution level the Act mandates that every company have a set of internal procedures designed to ensure accurate financial disclosure. In the context of incentive compensation management, this has a number of specific consequences.

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