In the Department of Justice’s Evaluation of Corporate Compliance Programs, Prong 8 Incentive and Disciplinary Measures it states: 

Incentive SystemHow has the company incentivized compliance and ethical behavior? How has the company considered the potential negative compliance implications of its incentives and rewards? Have there been specific examples of actions taken (e.g., promotions or awards denied) as a result of compliance and ethics considerations?

Further, one of the key points that representatives of the DOJ and Securities and Exchange Commission (SEC) have continually raised when discussing any best practices compliance program; whether based on the Ten Hallmarks of an Effective Compliance Program, as articulated in their 2012 FCPA Guidance, or some other articulation such as in a Deferred Prosecution Agreement’s (DPA) Attachment C is incentives for compliance. They continually remind Chief Compliance Officers (CCOs) and compliance practitioners that any best practices compliance program should have incentives as a part of the program.

The 2012 Guidance is clear that there should be incentives for not only following your own company’s internal Code of Conduct but also doing business the right way, i.e. not engaging in bribery and corruption. On incentives, the Guidance says, “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. Some organizations, for example, have made adherence to compliance a significant metric for management’s bonuses so that compliance becomes an integral part of management’s everyday concern.” But the Guidance also recognizes that incentives need not only be limited to financial rewards as sometime simply acknowledging employees for doing the right thing can be a powerful tool as well.

All of this was neatly summed up in the Guidance with a quote from a speech given in 2004 by Stephen M. Cutler, the then Director, Division of Enforcement, SEC, entitled, “Tone at the Top: Getting It Right”, to the Second Annual General Counsel Roundtable, where Director Cutler said the following:

[M]ake integrity, ethics and compliance part of the promotion, compensation and evaluation processes as well. For at the end of the day, the most effective way to communicate that “doing the right thing” is a priority, is to reward it. Conversely, if employees are led to believe that, when it comes to compensation and career advancement, all that counts is short-term profitability, and that cutting ethical corners is an ac­ceptable way of getting there, they’ll perform to that measure. To cite an example from a different walk of life: a college football coach can be told that the graduation rates of his players are what matters, but he’ll know differently if the sole focus of his contract extension talks or the decision to fire him is his win-loss record.

All of this demonstrates that incentives can take a wide range of avenues. The oilfield services company Weatherford, annually awards cash bonuses of $10,000 for employees who go above and beyond in the area of ethics and compliance for the company. While some might intone that is to be expected from a company that only recently concluded a multi-year and multi-million dollar enforcement action; if you want emphasize a change on culture, not much says so more loudly than awarding that kind of money to an employee.

While I am sure that being handed a check for $10,000 is quite a nice prize, you can also consider much more mundane methods to incentivize compliance. You can make a compliance evaluation a part of any employee’s overall evaluation for some type of year end discretionary bonus payment. It can be 5%, 10% or even up to 20%. But once you put it in writing, you need to actually follow it.

But incentives can be burned into the DNA of a company through the hiring and promotion processes. There should be a compliance component to all senior management hires and promotions up to those august ranks within a company. Your Human Resources (HR) function can be a great aid to your cause in driving the right type of behavior through the design and implementation of such structures. Employees know who gets promoted and why. If someone who is only known for hitting their numbers continually is promoted, however they accomplished this feat will certainly be observed by his or her co-workers. 

Three Key Takeaways

  1. The DOJ evaluation specifically calls out incentives for doing business ethically and in compliance.
  2. HR can lead the efforts around incentives.
  3. Incentives go beyond financial rewards. 

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

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