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.
This same concept around compensation and incentives was brought forward in the Evaluation under Prong 8, Incentives and Disciplinary Measures, where it stated, “Incentive System – How 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?”
A Harvard Business Review (HBR) article, entitled “The Right Way to Use Compensation”, discussed a company’s design and redesign of its employee’s compensation system to help drive certain behaviors. The piece’s subtitle indicated how the company fared in this technique as it read, “To shift strategy, change how you pay your team.” The article lays out a framework for the Chief Compliance Officer or compliance practitioner to operationalize compensation as a mechanism in a best practices compliance program.
As your compliance program matures and your strategy shifts, “it’s critical that the employees who bring in the revenue-the sales force-understand and behave in ways that support the new strategy. The sales compensation system can help ventures achieve that compliance.” The prescription for you as the compliance practitioner is to revise the incentive system to focus your employees on the goals of your compliance program. This may mean that you need to change the incentives as the compliance programs matures; from installing the building blocks of compliance to burning anti-corruption compliance into the DNA of your company.
There are three key questions you should ask yourself in modifying your compensation structure. First, is the change simple? Second, is the changed aligned with your company values? Third, is the effective on behavior immediate due to the change?
Simplicity-Keep the compensation plan simple and even employee KISS, keep it simple sir, when designing your program. If you do not do so, your employees might fall back on old behaviors that worked in the past. e.
Alignment-As the CCO or compliance practitioner, you need to posit the most important compliance goal your entity needs to achieve. From there you should determine how your compensation program can be aligned with that goal.
Immediacy-Finally, under immediacy, it is important that such structures be put in place “immediately” but in a way that incentives employees. As a part of immediacy, there must be sufficient communication with your employee. In the world of employee compensation incentives, there should be transparency as to the expectations.
Obviously, the power of a compensation plan to motivate salespeople not only to sell more but to act in ways that support your company’s business model and overall culture and values. For the compliance practitioner one of the biggest reasons is to first change a company’s culture to make compliance more important but to then burn it into the fabric of your organization. But you must be able to evolve in your thinking and professionalism as a compliance practitioner to recognize the opportunities to change and then adapt your incentive program to make the doing of compliance part of your company’s everyday business process.
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.
A former Enforcement Director of the SEC said “[M]ake integrity, ethics and compliance part of the promotion, compensation and evaluation processes as well.Click to tweet
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