One of the areas that many companies have not paid as much attention to in their compliance programs is compensation. However, the DOJ and SEC have long made clear that they view monetary structure for compensation, rewarding those employees who do business in compliance with their employer’s compliance program, as one of the ways to reinforce the compliance program and the message of compliance. As far back as 2004, then SEC Director of Enforcement Stephen M. Cutler noted that integrity, ethics and compliance needed to be part of promotion, compensation and evaluation processes: “At the end of the day, the most effective way to communicate that “doing the right thing” is a priority, is to reward it.”
The 2012 FCPA Guidance stated the “DOJ and SEC recognize that positive incentives can also drive compliant behavior. These incentives can take many forms such as personnel evaluations and promotions, rewards for improving and developing a company’s compliance program, and rewards for ethics and compliance leadership.”
This same concept around compensation and incentives was brought forward in the 2019 Guidance – Incentives and Disciplinary Measures, which read:
Incentive System – Has the company considered the implications of its incentives and rewards on compliance? How does the company incentivize compliance and ethical behavior? Have there been specific examples of actions taken (e.g., promotions or awards denied) as a result of compliance and ethics considerations? Who determines the compensation, including bonuses, as well as discipline and promotion of compliance personnel?
The first question posed in the 2019 Guidance requires you to start with the basic question of what does your employee compensation consist of? Is it a straight salary? Is it variable? If so, what does the variable component consist of? Is it a discretionary bonus based upon the overall success of the entire business enterprise or some small subset such as a business unit or geographic region? Is it solely personal? Or is it some combination of all of the above?
Three key takeaways:
- The DOJ and SEC have long advocated compensation as a way to motivate employees into ethical and compliant behaviors
- Keep the compliance aspects of your compensation structure simple and easy for your employees to understand
- Have full transparency in the framework of your compensation structure
