We lost another famous Texan this week, as the actor Rip Torn passed away. He was from Temple, Texas which was in the same athletic district as my home town. He attended both Texas A&M University and the University of Texas, an admittedly rare feat. Torn was a versatile actor on stage, in film and on the small screen as well. In addition to being well-known for a volatile temper, according to his New York Times obituary, he was probably best known for his role as the “gruff Artie on “Larry Sanders,” which starred Garry Shandling as the neurotic star of a late-night talk show and which ran from 1992 to 1998 on HBO, Mr. Torn stole practically every scene he was in.”
My personal favorite role for Torn was as Chief Zed: the head of the MIB, “in the lighthearted “Men in Black” (1997), he headed an organization supervising extraterrestrials who secretly live on Earth. He reprised the role in the film’s 2002 sequel.” It was Chief Jed who had the foresight to recruit and then accept Will Smith into the MIB where he was given the moniker ‘Agent J’. One of the side benefits to belonging to the MIB was the very cool toys the agency had based upon alien technology. I thought about those very cool toys as incentives and how incentives can work into a compliance program.
In the recently released Evaluation of Corporate Compliance Programs, 2019 Guidance by the Department of Justice, incentives are specifically identified in the section under “is your program effectively implemented?” The 2019 Guidance asks,
Incentive System– Has the company considered the implications of its incentives and rewards on compliance? How does the company incentivize compliance and ethical behavior? 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?
While your sales compensation system can achieve that compliance goal, these questions go beyond this simple calculus. Your incentive system, for salary, to bonuses to promotions should focus 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 integrating anti-corruption compliance within the DNA of your company.
Most compliance professionals understand the need to discipline employees who may have violated the 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 MIT Sloan Management Review article, entitled “Combining Purpose with Profits”, and formulated 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 could 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 FCPA Guidance, “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 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 numbers for two quarters, they do 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.
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.
It is now more important than ever that you demonstrate tangible incentives for your employees to gain benefits, both financial and hierarchical, through doing business ethically, in compliance with your own Code of Conduct and most certainly in compliance with relevant anti-bribery laws such as the FCPA or U.K. Bribery Act. It is also a requirement that such actions be documented so they can be demonstrated to the DOJ if they come knocking.
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at email@example.com.
© Thomas R. Fox, 2019