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Operationalizing Compliance With 10 Questions for HR

Operationalizing compliance is the crucial step in creating an effective compliance program within an organization. It involves cascading compliance goals to all levels of the organization and fostering a culture of compliance. This process requires clarity and comparability of goals, focusing on high-risk areas first, and gradually expanding initiatives. Ethical business conduct should be a top priority, with HR playing a key role in attracting and developing talent. Continuous improvement and performance tracking are also crucial for identifying gaps and developing key compliance indicators.

Root cause analysis is a key process in identifying the reasons behind compliance failures and implementing effective solutions. It involves understanding what allowed the compliance issue to arise, rather than simply assigning blame, and addressing the core issues to prevent future compliance failures. It goes beyond assigning blame and focuses on finding solutions to prevent future failures. Understanding the root cause allows organizations to address the core issues and implement effective measures to ensure compliance.

To operationalize compliance effectively, organizations need to consider several key factors. One of the first factors is the interconnectedness of targets. Compliance goals should be cascaded down to individual workers, ensuring that everyone understands their role in achieving compliance objectives. While tone at the top is important, it is equally crucial to establish an appropriate tone in the middle and at the bottom of the organization.

Clarity and comparability of goals is another important factor. Compliance targets should be clearly communicated and understood by all employees. Complex goals can lead to confusion and hinder the operationalization process. Focusing on high-risk areas first and gradually expanding initiatives can help manage risks effectively and ensure a systematic approach to compliance.

The role of HR in operationalizing compliance cannot be overstated. HR should take the lead in showing that attracting and developing talent who will engage in ethical business conduct is a top priority. By creating the appropriate mindset of doing business the right way throughout the organization, HR can contribute to the successful operationalization of compliance.

Continuous improvement and performance tracking are essential for identifying gaps in the compliance program. Monitoring compliance programs in real-time and reacting quickly to remediate them is crucial. Auditing and monitoring should work in tandem to uncover and evaluate risks. Key compliance indicators, such as hotline or helpline reports, can provide valuable insights into the effectiveness of the compliance program.

While operationalizing compliance is essential, organizations must also consider the impact on employees. Talent acquisition and retention is a critical business function. Retaining top employees who engage in ethical business conduct is crucial for the long-term success of the compliance program. By promoting and rewarding employees who adhere to the code of conduct, organizations can create a culture of compliance and operationalize it fully.

Balancing these factors can be challenging. Organizations must weigh the tradeoffs involved in cascading compliance goals, clarifying goals, and addressing high-risk areas. They must also consider the challenges associated with monitoring and auditing, as well as the importance of root cause analysis and employee retention.

What are the 10 questions you should ask to test, monitor and improve these issues?

  1. How are compliance goals cascaded down to individual workers?
  2. Does anyone complain that your compliance targets are too complex?
  3. How do you deal with repeated compliance failures in a specific business segment or compliance program area?
  4. How does your company show that attracting and developing talent who will engage in ethical business conduct is a top priority?
  5. How long is compliance underperforming tolerated?
  6. What makes it distinctive to work at your company?
  7. How do compliance programs that are not working typically get exposed and remediated?
  8. What key compliance indicators do you use for compliance tracking?
  9. For a given compliance problem, how do you identify the root cause?
  10. What are you doing to retain your top employees from the compliance perspective?

In conclusion, operationalizing compliance is a key component of an effective compliance program. By considering the interconnectedness of targets, clarity and comparability of goals, the role of HR, continuous improvement and performance tracking, root cause analysis, and employee retention, organizations can successfully operationalize compliance and prevent future compliance failures. It is crucial to strike a balance between these factors and consider the impact on employees when making decisions about operationalizing compliance and root cause analysis.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 21 – Ten Compliance Questions To Pose To HR

As we end this month on the intersection of HR and compliance, I have developed a series of goals and objectives which you might want to use as a starting point for operationalizing your compliance initiatives through your corporate HR function.

  1. How are compliance goals cascaded down to individual workers?
  2. Does anyone complain that your compliance targets are too complex?
  3. How do you deal with repeated compliance failures in a specific business segment or compliance program area?
  4. How does your company show that attracting and developing talent who will engage in ethical business conduct is a top priority?
  5. How long is compliance underperforming tolerated?
  6. What makes it distinctive to work at your company?
  7. How do compliance programs that are not working typically get exposed and remediated?
  8. What key compliance indicators do you use for compliance tracking?
  9. For a given compliance problem, how do you identify the root cause?
  10. What are you doing to retain your top employees from the compliance perspective?

Compliance practitioners continually face the challenge of keeping up with the ever-evolving compliance best practices with little or no budget increase. By asking yourself and of your compliance program these questions you may create a road map to more fully operationalize your compliance regime.

Three key takeaways:

  1. What are the unique compliance targets you have set and how interconnected are they to your business unit goals?
  2. Use a root cause analysis to determine why compliance initiatives are not successful.
  3. Retraining employees in compliance is an under-utilized tool.

For more information, check out The Compliance Handbook, 4th edition, here.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 20 – Gap Analysis for HR

Join Tom Fox in this episode of the 31 Days to a More Effective Compliance Program podcast to delve deeper into the significant role of HR in implementing compliance programs. Hopefully you now understand that many of the traditional functions of Human Resources (HR) can be seen as compliance internal controls. At every touchpoint in the lifecycle of the employment relationship there is a HR touchpoint. Fulfilling those touchpoints can be controls for compliance. If you think of multiple HR functions as compliance internal controls, one of the questions becomes how can you determine if HR is meeting the standards of a best practices compliance program? One place to start is with a gap analysis to determine what HR has in place that can facilitate your company’s compliance program.

The role of HR in implementing compliance programs is a critical aspect of maintaining best practices within an organization. Traditional HR functions can serve as compliance internal controls, and that every touch point in the employment relationship can serve as a control for compliance. Fox’s insights are derived from his extensive experience and deep understanding of the compliance and HR environment. He emphasizes the importance of conducting a comprehensive gap analysis and fostering collaboration between HR and business units to enhance the compliance program.

Finally, work with HR to create a consolidated Human Resources Compliance Audit Checklist that can be used to audit (and document) the company’s HR Compliance Program. The key to compliance, in my opinion, is having the proper structure to identify the issues, implement policies and procedures to address the issues, audit for compliance and “Document, Document, and Document”.

 Three key takeaways:

  1. A gap analysis is a key component in the risk assessment process.
  2. The ultimate responsibility should lie with the business units and functional discipline to fully operationalize compliance.
  3. The role of the compliance department is to oversee, provide subject matter expertise and coordinate.

 

For more information, check out The Compliance Handbook, 4th edition, here.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 14 – Hiring A CCO: Developing The Job Profile

What should a company do when it desires to hire a CCO? To do so, a company needs to fully understand and appreciate what it needs from such a position going forward. Unfortunately, many companies do not have this insight at the beginning of the recruitment process. The key company stakeholders need to understand the full hiring process. Obviously, this will include HR and others involved in the hiring process for a CCO for the company. It could include the CEO, COO, CFO, CISO, Head of IA and others. They may need to rethink their approach to focus on what they will ask the new hire to accomplish because typically there is a disconnect between what the company thinks it needs and what it really needs.

Tom highlights the importance of developing a comprehensive job profile. Maurice Gilbert provides insights on the topic, emphasizing the need for companies to understand their specific needs and risks when creating a job profile for the CCO position. The podcast also discusses the importance of involving key stakeholders, setting realistic expectations, and considering professional growth opportunities and an attractive package for potential candidates. By involving key stakeholders in defining the role of the CCO and seeking the assistance of a professional executive recruiter, companies can find the right fit for their compliance program’s success.

Three key takeaways:

  1. Bring in your key stakeholders to flesh out the job description.
  2. Consider the top four things you would like a new CCO to accomplish in the first year.
  3. For a new CCO to succeed, the company must have a realistic expectation developed before the process begins.

For more information, check out The Compliance Handbook, 4th edition here.

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Executive Compliance Comp and Compliance: From Incentives to Clawbacks

There are two problems that every company must deal with at the intersection of executive compensation and compliance. The first is the presence of perverse incentives within organizations, where executives are often encouraged to take excessive risks because they personally profit from them. This misalignment of incentives can lead to unethical behavior and non-compliance, ultimately harming the organization and its stakeholders. The second is both the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) mandates for executive clawbacks.

Incentives

To address this issue, companies need to tie positive incentives directly to senior executives. By holding them accountable for compliance failures, we can align their compensation with compliance objectives. This approach ensures that executives have a personal stake in maintaining ethical practices within the organization. What makes this approach unique is that it is a business response to a legal problem, rather than a government mandate. A business response is always a better way to go, as it allows organizations to take ownership of their compliance programs and tailor them to their specific needs.

Various proposals are discussed in the podcast to ensure senior executives are held personally accountable for compliance failures. One solution, suggested by William Dudley, former president of the Federal Reserve Bank of New York, is for senior management and material risk takers to forfeit their performance bond in the case of large fines. This not only disciplines individual behavior and decision-making but also incentivizes individuals to flag issues when problems arise.

Another approach, outlined in an article titled “Ties That Bind Codes of Conduct,” recommends automatic reduction of pay for officers, directors, and advisors for failures of corporate governance. Executives would agree to pay back a portion of their gross compensation for a set period before the beginning of any improprieties, regardless of their knowledge of misdeeds within the company.

While corporate leaders may not be enthusiastic about being held accountable, these proposals offer a business solution to a legal problem. Holding senior executives responsible for the conduct of others aligns with their obligations under Sarbanes-Oxley and ensures that they are not shielded from the consequences of non-compliance. Shareholders are also becoming less accepting of the argument that leaders should not be responsible for the actions of their employees.

Data from an article by Gretchen Morgenson titled “Ways to Put Your Boss’s Skin in the Game” further supports the need for accountability in executive compensation. The article explores how to make senior executives more responsible for corporate malfeasance, with implications that apply to compliance programs and compensation tied to compliance.  Creating accountability in executive compensation is a critical step towards promoting ethical business practices and compliance within organizations. By tying positive incentives to senior executives, we can ensure that they have a personal stake in maintaining compliance objectives. The proposals discussed in the podcast, such as forfeiting performance bonds and enforcing pay reductions for failures of corporate governance, offer practical solutions to address perverse incentives and drive ethical behavior.

Clawbacks

Clawbacks, often seen as a form of guarantee for businesses, play a vital role in addressing employee misconduct. These provisions, typically included in written contracts, serve as a deterrent and allow organizations to reclaim incentive or bonus funds from employees engaged in wrongful activities. It is important to note that clawbacks apply to compensation received as incentives or bonuses, rather than salary.

The SEC has provided guidance on constructing effective clawback provisions. In their final rule titled “Listing Standards for Recovery of Erroneously Awarded Compensation,” (the Rule) the SEC directs National Securities Exchanges and Associations to establish listing standards for issuers to develop and implement policies for recovering incentive-based compensation in the event of required accounting restatements.

The DOJ has also weighed in on subject of clawbacks, most recently in the 2023 Evaluation of Corporate Compliance Programs (ECCP), it stated “Are the terms of bonus and deferred compensation subject to cancellation or recoupment, to the extent available under applicable law, in the event that non-compliant or unethical behavior is exposed before or after the award was issued? Does the company have a policy for recouping compensation that has been paid, where there has been misconduct? Have there been specific examples of actions taken (e.g., promotions or awards denied, compensation recouped or deferred compensation cancelled) as a result of compliance and ethics considerations?”

In summary, both the SEC and DOJ have now laid out the foundations for both incentives and consequence management.

SEC: The SEC Rule encompasses a wide range of scenarios. Companies are required to claw back incentive compensation erroneously received by current or former executives during the three-year period preceding the required restatement date. The definition of “received” is broad, considering incentive compensation earned even if not yet paid. The recoverable amount may differ from what executives would have received based on the required restatement. The SEC rule prohibits companies from obtaining indemnity insurance to protect executives from clawbacks. This step ensures that executives are held personally accountable for their actions and fosters a culture of compliance within organizations.

DOJ: In the ECCP has emphasized the significance of clawbacks in compliance programs. The ECCP directs companies to develop and apply compensation and clawback policies, shifting the burden of financial penalties away from innocent shareholders. The clear intent to prevent companies from shielding employees involved in illegal and unethical conduct. The DOJ will consider whether a company has incentivized compliance by designing compensation systems that defer or escrow certain compensation tied to conduct consistent with company values and policies. Enforcement of a contract provisions that permit the company to recoup previously awarded compensation if the recipient of such compensation is found to have engaged in or to be otherwise responsible for corporate wrongdoing is now a critical metric that prosecutors will consider. Finally, prosecutors may consider whether provisions for recoupment or reduction of compensation due to compliance violations or misconduct are maintained and enforced in accordance with company policy and applicable laws.

 Practical Steps

To create a robust compliance program that promotes ethical behavior and compliance, companies should consider the following practical advice:

  1. Documented Policies and Procedures: It is crucial for companies to document and reflect clawback policies and procedures in their compensation agreements. This documentation showcases a commitment to compliance and serves as a deterrent for potential misconduct.
  1. Clear Disciplinary Procedures: Companies should have appropriate and clear disciplinary procedures in place when enforcing a compliance program. Publicizing disciplinary actions internally and under local law can have a deterrent effect on employees, emphasizing the consequences of engaging in unlawful or unethical behavior.
  1. Personal Accountability: The DOJ and SEC prioritize holding individuals accountable for misconduct. Prosecutors evaluate whether a corporation’s compensation agreements incorporate clawback provisions that enable penalties to be levied against employees, executives, or directors involved in criminal conduct.

 Conclusion

Clawback provisions have become a crucial element in compliance programs, promoting ethical behavior and ensuring accountability within organizations. The SEC Rule, along with the DOJ’s emphasis on clawbacks from the Monaco Memo to the ECCP, highlights the significance of these provisions in the business world. By implementing well-documented clawback policies, companies can create a culture of compliance that rewards ethical behavior and protects innocent shareholders. Both initiatives prioritize ethical practices and compliance to build a better business environment for all stakeholders.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 13 – Compliance Performance Appraisal Review

One of the ways to operationalize compliance and to drive it into the DNA of an organization is through a performance review. Indeed, the 2023 ECCP stated:
Incentive System…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?
Most HR experts will opine that properly executed performance appraisals are crucial to organizational productivity as well as the development of employee skills and employee morale. Moreover, they can serve a couple of different functions for a best practices compliance program. First, and foremost, they communicate to each employee their job performance from a compliance perspective.

However, one key is not to approach the performance appraisal review as an isolated event but rather a continual process. This means that instead of trying to play catch-up at the last minute, supervisors should provide feedback and assess job performance throughout the year so annual reviews are grounded in a year’s worth of experience. This includes the compliance component of each job. The second area performance appraisals impact is compensation. The DOJ expect that your compliance program will have both discipline and incentives. But those incentives need to be based upon something. The score or other performance appraisal metrics will provide to you a standard which you can measure and use to evaluate for other purposes such as employee promotion or advancement to senior management going forward.
Three key takeaways:

  1. To incentivize compliance, you must be able to accurately appraise senior managers and employees around compliance.
  2. Clearly communicate your compliance expectations, then fairly evaluate employees on them.
  3. Consider conducting an ongoing review.

For more information, check out The Compliance Handbook, 4th edition here.

 

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 12 – Succession Planning Around Compliance

Another area where Human Resources can help to more fully operationalize compliance is in succession planning. Succession planning is just as important as governance, enterprise risk management and strategic oversight. In other words, it is just as important. Sadly, many companies fail to give it the attention it requires. A PricewaterhouseCoopers (PwC) survey, found nearly one-half of the more than 1,000 directors gauged reported dissatisfaction with their companies’ succession plans. Imagine what that number would be if they took into account the compliance aspect of succession planning. Some of the questions you might consider are the following. How did you fully operationalize compliance into the business unit that you managed? What controls did you put in place? And then what did you do when you found out about it?

Every time I perform a risk assessment and speak to the company’s HR lead, they immediately understand the role than can play in moving forward a company’s compliance program. Even if the HR role is limited in the hiring process, they can ask potential candidates their views to determine underlying business ethics. HR can also begin the compliance inculcation process, even pre-hiring, by talking about the company’s values in the interview process. This sets an expectation that can be built upon if a candidate is selected and in every HR touch point going forward, including looking at employees in the succession planning process.
Three key takeaways:

  1. Succession planning is just as important as governance, enterprise risk and strategic oversight.
  2. Do not begin your succession planning when a senior manager announces their retirement.
  3. You are always being evaluated (or you should be).

For more information, check out The Compliance Handbook, 4th edition here.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 9 – Clawbacks

In this podcast series, host Tom Fox explores the growing emphasis on clawback provisions in compliance programs and employee compensation.

Tom Fox delves into the crucial topic of clawback provisions in compliance programs and employee compensation. In light of the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) prioritizing individual accountability for misconduct, clawbacks have become essential in promoting ethical behavior and ensuring compliance. So, let’s dive in and explore the significance of clawbacks in today’s evolving compliance landscape.

Understanding Clawbacks and Incentive-Based Compensation:

Clawbacks, as discussed in the podcast, are provisions that enable organizations to reclaim incentive or bonus funds from employees engaged in misconduct. They serve as a powerful deterrent and hold individuals accountable for their actions. Previously, clawbacks were not seen as necessary, but the DOJ now mandates their inclusion in compensation agreements.

The DOJ’s Focus on Ethical Business Practices:

The DOJ, in its pursuit of punishing officers and employees who fail to conduct business ethically, has made clawbacks a part of best practices compliance programs. To evaluate a company’s compliance program, the DOJ and SEC consider whether the organization has appropriate disciplinary procedures in place. Publicizing disciplinary actions internally and under local law can have a deterrent effect, emphasizing the importance of transparent consequences for misconduct.

The Role of Clawbacks in Compliance Programs:

Having clawback provisions is now seen as a crucial aspect of a good corporate compliance culture. It promotes compliant behavior and demonstrates a company’s commitment to its compliance program. The DOJ investigates whether corporations have included clawback provisions in their compensation agreements and taken steps to execute on such agreements. This highlights the significance of documenting and reflecting these policies and procedures in a company’s own compensation practices.

The SEC’s Final Rule on Clawbacks:

The SEC’s final rule, titled “Listing Standards for Recovery of Erroneously Awarded Compensation,” directs issuers to establish policies for recovering incentive-based compensation in the event of required accounting restatements. This rule applies to both Big R and Little R restatements and provides guidance in the anti-corruption world. Companies are now required to claw back incentive compensation erroneously received by current or former executives during the three-year period preceding the required restatement date.

Ensuring Compliance with Clawbacks:

It is essential for companies to construct well-documented clawback programs that align with the SEC’s guidance. The recoverable amount may differ from what executives would have received based on the required restatement, emphasizing the need for clarity and transparency in compensation agreements. Additionally, the SEC’s final rule prohibits companies from obtaining indemnity insurance to protect executives from clawbacks, further reinforcing the importance of accountability.

Conclusion:

As we’ve explored in this episode, clawbacks play a vital role in promoting ethical behavior and compliance within organizations. The DOJ’s emphasis on individual accountability and the SEC’s final rule on clawbacks demonstrate the evolving landscape of compliance. By implementing well-documented clawback provisions, companies can deter misconduct, hold individuals accountable, and showcase their commitment to ethical practices. Remember, incorporating clawbacks into your compliance program is not just a regulatory requirement but a practical step towards fostering a culture of integrity and responsibility.

 Three key takeaways:

1. The DOJ now mandates clawbacks in a compliance program.

2. The SEC has passed a clawback rule apart from the Monaco Memo.

3. Your clawback program should be well-documented.

For more information, check out The Compliance Handbook, 4th edition, available on LexisNexis.com.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 8-Executives and Compliance Compensation Incentives

The lack of personal consequences for senior executives responsible for corporate malfeasance is explored in this podcast episode. Executives are incentivized to take excessive risks, knowing they won’t have to pay any fines, while shareholders bear the brunt of penalties. Proposed solutions include the concept of “skin in the game,” where executives contribute a portion of their compensation to a pool of money that can be used to pay penalties. Another suggestion involves forfeiting the performance bond of senior management in the case of large fines. A third approach suggests creating a contract that would enforce a reduction in pay for failures of corporate governance. These proposals aim to hold senior executives personally accountable for compliance failures and align executive compensation with compliance objectives. HR professionals play a crucial role in designing and implementing positive incentives to foster a culture of compliance and ethical conduct within organizations.

When it comes to compliance failures, the penalties are usually paid by shareholders, leaving senior executives largely untouched. This lack of personal accountability creates a disconnect between executive actions and the consequences of those actions. It’s high time we bridge this gap and ensure that senior executives are held personally responsible for compliance failures. What are some proposed solutions:

1. “Skin in the Game”. One proposed solution, advocated by William Dudley, former president of the Federal Reserve Bank of New York, suggests that senior management and material risk takers should forfeit their performance bond in the case of large fines. This approach would discipline individual behavior and decision-making, incentivizing individuals to flag issues when problems arise.

2. Automatic Pay Reductions. Another approach, proposed in an article titled “Ties That Bind Codes of Conduct,” suggests automatic reduction of pay for officers, directors, and advisors for failures of corporate governance. Executives would agree to pay back a portion of their gross compensation for a specified period before the beginning of any improprieties, regardless of their knowledge of misdeeds within the company.

Benefits of Accountability for Senior Executives:

1. Aligning Incentives. Corporate leaders cannot afford to turn a blind eye to compliance failures anymore. Holding senior executives accountable ensures that their compensation is directly tied to compliance objectives, aligning incentives and promoting ethical business practices.

2. Addressing Perverse Incentives. Perverse incentives in corporate pay, such as additional compensation based on company performance, can lead to unethical behavior and non-compliance. By implementing accountability measures, we can address these perverse incentives and create a culture of ethical behavior within organizations.

3. Driving Positive Change. Creating positive incentives within organizations is crucial to driving ethical behavior and compliance. HR professionals play a pivotal role in designing and implementing these incentives, ensuring that they are effective in promoting a culture of compliance.

Three key takeaways:

1. Perverse incentives are named that for a reason; they really are bad.

2. How can you create positive incentives in your organization?

3. There is a business response to this legal issue. Employ it.

For more information, check out The Compliance Handbook, 4th edition, available on LexisNexis.com.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 7 – Designing Compensation to Operationalize Compliance

In this podcast episode, Tom Fox highlights the importance of incorporating compensation systems into a company’s compliance program. He discusses how the DOJ and SEC view monetary structures as a way to reinforce compliance and reward employees who adhere to compliance programs. Fox advises compliance practitioners to revise incentive systems to align with the goals of the compliance program, ensuring simplicity, alignment with company values, and immediate behavior change. He also emphasizes the need to align compensation programs with compliance goals and shares examples of how this can be done effectively. These episodes provide valuable insights into the role of compensation in promoting compliance and integrating compliance into HR practices, emphasizing the importance of transparency and immediate action in implementing effective compensation structures for compliance.

When it comes to compliance programs, many companies focus primarily on policies, procedures, and training. However, designing a compensation system that reinforces compliance is equally crucial. According to the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), rewarding employees who conduct business in compliance with their employers’ programs is an effective way to promote compliance.

  1. Incorporating Compliance Incentives:

To align your compensation system with your compliance program, consider revising your incentive structure. Fox advises compliance practitioners to ask themselves three key questions: Is it simple? Is it aligned with company values? Does it affect behavior immediately?

Keeping the compensation plan simple is essential to prevent employees from reverting to old, non-compliant behaviors. By aligning the goals of compliance practitioners with the entity’s compliance goals, you can ensure that the compensation program effectively drives desired behaviors.

2. The Impact of Sales Compensation:

Salespeople often generate the majority of a company’s revenue, making their alignment with compliance goals crucial. Immediate implementation of incentive structures is important, but it should also incentivize employees to support compliance initiatives. Transparent communication with employees or third-party sales bases is necessary for effective implementation.

3. Transparency and Accountability:

Transparency plays a vital role in gaining acceptance for compliance initiatives. While designing the incentive system may not be a democratic process, openness is essential. Employees should appreciate the transparency in the compensation structure, leading to accountability and their acceptance of compliance goals.

4. Integrating Compliance Incentives:

The podcast suggests incorporating compliance incentives into the compensation program. Even a small percentage of a discretionary bonus can be significant to employees. For example, a discretionary bonus program based on overall sales can be a starting point for incorporating compliance incentives. Fox recommends allocating 5-10-20% of the discretionary bonus program towards compliance incentives.

5. The Role of HR in a Fully Operationalized Compliance Program:

To fully operationalize compliance, it is essential to integrate compliance into HR practices. HR can play a crucial role in ensuring transparency, simplicity, and alignment of the compensation structure with company values. By making compliance part of the incentive structure, employees will understand and support the evolving business model and strategy of the organization.

As compliance practitioners, it is our responsibility to prioritize integrity, ethics, and compliance within our organizations. Incorporating compensation systems into our compliance programs is a powerful tool in driving desired behaviors. By aligning our incentive structures with compliance goals, keeping them simple, and fostering transparency, we can create a culture of accountability and acceptance.

Three key takeaways:

  1. The DOJ and SEC have long advocated compensation to motivate employees into ethical and compliant behaviors.
  2. Keep the compliance aspects of your compensation structure simple and easy for your employees to understand.
  3. Have full transparency in the frame of your compensation structure.

For more information, check out The Compliance Handbook, 4th edition, available on LexisNexis.com.