Compensation or compromise? The risks of compliance bonuses

While the word “bonus” relates to many aspects of life, in recent years it has almost been hijacked by businesses, particularly the financial services industry. A bonus is often seen as a sign of appreciation, and conversely, some perceive no bonus as a lack of appreciation.

When a compliance officer perceives their bonus may be adversely impacted by their actions and decisions, there is a risk the wrong action or decision will be taken. This does not challenge the integrity of the compliance officer, but the influence of the bonus (e.g., unconscious bias) cannot and should not be ignored.

As a former police officer, I was not paid any kind of bonus for the role I performed. To do so could have led to bad outcomes, such as allegations of making arrests, providing evidence, and securing convictions to boost bonus payments. No, my primary bonus was waking up every morning to see my wife and children were safe and well, and my secondary bonus was the sense of accomplishment in doing my job and helping others.

Then, in 2001, I embarked upon a career as a compliance officer and started to receive substantial bonuses. In one instance with a new employer, I negotiated guaranteed minimum annual bonuses, but ultimately, I was not happy. I was not satisfied, and I lacked a sense of accomplishment in my role. I did not sense I was making a difference, and worse still, the bonus was working against me.

In 2005, I joined Wachovia Bank (now Wells Fargo) as the head of financial crime in London. I quickly learned of the “scorecard,” a document that profoundly influenced leaders, money, and bonuses. Essentially, as the name of document suggests, this was a scheduled, periodic record of scores awarded articulating the views of business unit managers in respect to the quality of service provided by respective support functions, such as legal, human resources, and compliance, within the wholesale and international division of the bank.

Consequently, this was the most important document within the compliance function, and for a protracted period of time, quarter after quarter, compliance ranked No. 1 ahead of all other support functions. In this instance, the prize was a big bonus.

All the while, the same bank was laundering money for Mexican drug cartels and Eastern European crime groups. I confronted the money laundering, and behold, compliance dropped from No. 1. The head of compliance packed a clean shirt, underwear, toiletries, and his anger into a suitcase before flying to London—he determined I had caused this calamity. While seeking to persuade me of the error of my actions and decision-making, he referenced the importance of how business units perceived compliance. Later, he more bluntly asserted No. 1 on the scorecard was important because it influenced bonuses, including his, which he told me was previously 225 percent of his annual six-figure salary.

For the record, I have never received a bonus of that magnitude, and after he left London, neither did the head of compliance ever again. I stuck to my decisions and continued to frustrate clients that were laundering money, relationship managers, country heads, and compliance colleagues. I came under increasing pressure to adjust my actions—to better understand and accommodate business colleagues and their clients. It was stressful, and subsequently, I was told my actions had impacted my bonus.

To me, though, my actions were my bonus, because I was stopping money laundering, frustrating criminals, and potentially saving lives. It felt good; moreover, I retained my integrity and credibility, priceless attributes for a compliance officer.

But still, at face value, I was punished for what I did, which is why I posit that compliance officers should not receive a bonus.

Instead, their compensation should come via higher salary as a way to ensure the retention of integrity and credibility. Firms face increasing costs for noncompliance, which can be avoided or reduced when compliance officers are not compromised and act free of conscious and unconscious bias. Thus, such would be a win-win—isn’t that what everyone is looking for to start the new year?