One of the areas that many companies have not paid as much attention to in their compliance programs is compensation and incentives. 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.
This was made clear again in the Monaco Memo, which stated, “Corporations can help deter criminal activity if they reward compliant behavior and penalize individuals who engage in misconduct. Compensation systems that clearly and effectively impose financial penalties for misconduct can incentivize compliant conduct, deter risky behavior, and instill a corporate culture in which employees follow the law and avoid legal “gray areas.”
Moreover, the Monaco Memo tied compensation to a company’s culture of compliance. It stated, “Similarly, corporations can promote an ethical corporate culture by rewarding those executives and employees who promote compliance within the organization. Prosecutors should also consider whether a corporation’s compensation systems provide affirmative incentives for compliance-promoting behavior. Affirmative incentives include, for example, the use of compliance metrics and benchmarks in compensation calculations and the use of performance reviews that measure and reward compliance-promoting behavior, both to the employee and any subordinates whom they supervise. When effectively implemented, such provisions incentivize executives and employees to engage in and promote compliant behavior and emphasize the corporation’s commitment to its compliance programs and culture.”
Yet compensation incentives have long been key to any best practices compliance program. 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 2020 FCPA Guidance, 2nd edition, 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.” The Monaco Memo takes it a step further by asking more broadly has your company, “incentivized employee behavior as part of its efforts to create a culture of ethics and compliance within its organization.”
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
