More on the Sarbanes-Oxley Act
Read this article that explains the basic principles of the Sarbanes Oxley Act, which was passed in response to a series of large accounting scandals. This will help you understand some of the rules which govern public companies you may work for or invest in.
Clawbacks of executive compensation for misconduct
One
of the highlights of the law was a provision that allowed the SEC to
force a company's CEO or CFO to disgorge any executive compensation
(such as bonus pay or proceeds from stock sales) earned within a year of
misconduct that results in an earnings restatement. However, according
to Gretchen Morgenson of The New York Times, such clawbacks have
actually been rare, due in part to the requirement that the misconduct
must be either deliberate or reckless. The SEC did not attempt to claw
back any executive compensation until 2007, and as of December 2013 had
only brought 31 cases, 13 of which were begun after 2010. However,
according to Dan Whalen of the accounting research firm Audit Analytics,
the threat of clawbacks, and the time-consuming litigation associated
with them, has forced companies to tighten their financial reporting
standards.