In metrics laid out by former Assistant Attorney General Leslie R. Caldwell, she spoke about the need for compliance program incentives. She posed it with the following question, “Are there mechanisms to enforce compliance policies? Those include both incentivizing good compliance and disciplining violations.”
I think most compliance professionals understand the need to discipline employees who may have violated the Foreign Corrupt Practices Act (FCPA) or otherwise engaged in bribery and corruption. However, many CCOs and compliance practitioners do not focus as much attention to compliance incentives. I have developed six core principles for incentives, adapted from an article in the Spring 2014 issue of the MIT Sloan Management Review entitled “Combining Purpose with Profits” and reformulated them for the compliance function in an anti-corruption compliance program.
- Compliance incentives don’t have to be elaborate or novel. The first point is that there are only a limited number of compliance incentives that a company can meaningfully target. Evidence suggests the successful companies are the ones that were able to translate pedestrian-sounding compliance incentive goals into consistent and committed action.
- Compliance incentives need supporting systems if they are to stick. People take cues from those around them, but people are fickle and easily confused, and other goals can quickly drive out compliance incentives. This means that you will need to construct a compliance support system to operationalize their pro-compliance incentives at different levels, and thereby make them stick. The specific systems which support incentives can be created specifically to your company but the key point is that they are delivered consistently because it signals that management is sincere.
- Support systems are needed to reinforce compliance incentives. One important form of a supporting system for compliance incentives is to make the incentives visible. As stated in the 2012 FCPAGuidance, “Beyond financial incentives, some companies have highlighted compliance within their organizations by recognizing compliance professionals and internal audit staff. Others have made working in the company’s compliance organization a way to advance an employee’s career.”
- Compliance incentives need a “counterweight” to endure. Goal-framing theory shows how easy it is for compliance incentives to be driven out by other goals, so even with the types of supporting systems it is quite common to see executives bowing to short-term financial pressures. Thus, a key factor in creating enduring compliance incentives is a “counterweight”, that is any institutional mechanism that exists to enforce a continued focus on a nonfinancial goal. This means that in any financial downturn compliance incentives are not the first thing that gets thrown out the window and if a Regional Manager misses his numbers for two quarters, he does not get fired. The key is that the counterweight has real influence; it must hold the leader to account.
- Compliance incentive alignment works in an oblique, not linear, way. If you want your employees to align around compliance incentives, your company will have to “eschew narrow, linear thinking, and instead provide more scope for them to choose their own pathway.” This means emphasizing compliance as part of your company’s DNA on a consistent basis — “the intention being that by encouraging individuals to do “good,” their collective effort leads, seemingly as a side-effect, to better financial results. The logic of “[compliance first], profitability second” needs to find its way deeply into the collective psyche of the company.”
- Compliance incentive initiatives can be implemented at all levels. Who at your company is responsible for pursuing compliance incentives? If you head up a division or business unit, it is clearly your job to define what your pro-social goals are and to put in place the supporting structures and systems. But what if you are lower in the corporate hierarchy? It is tempting to think this is “someone else’s problem,” but there is no reason why you cannot follow your own version of the same process.
Obviously, this list is not exhaustive. Yet it is now more important than ever that you demonstrate tangible incentives for your employees to gain benefits, both financial and hierarchical, thorough doing business ethically, in compliance with your own Code of Conduct and most certainly in compliance with the FCPA. It is also a requirement that such actions must be documented so they can be demonstrated to the DOJ if they come knocking and look to employ the metrics which Caldwell has laid out for us all.
Three Key Takeaways
- Compliance incentives do not have to be elaborate or novel.
- You must create support systems for your compliance incentives.
- Compliance incentives should be implemented at all levels.
What are the six principals to operationalize your compliance incentive structure?
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.