The Department of Justice (DOJ) might soon begin requiring companies seeking a settlement of criminal charges to claw back compensation from employees involved in the misconduct.
In remarks delivered Thursday, Deputy Attorney General Lisa Monaco said, “[E]very corporate resolution involving the Criminal Division will now include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system.”
Compliance-promoting criteria consists of two parts: demanding the return of compensation earned by employees engaged in misconduct (clawbacks) and implementing a corporate compensation and bonus program that would measure compensation tied to an employee’s compliance score. The DOJ is also establishing a pilot program to reduce a corporation’s fine by the amount of clawbacks demanded, Monaco said.
Monaco said the agency’s new policy on clawbacks and compliance-promoting criteria, as well as the pilot program, will be released Friday.
“Our goal is simple: to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible,” she said. “We intend this program to encourage companies who do not already factor compliance into compensation to retool their programs and get ahead of the curve.”
As an example of compliance-promoting criteria, Monaco cited a provision in the DOJ’s $2.2 billion settlement with Danske Bank in December.
“Companies should ensure that executives and employees are personally invested in promoting compliance. And nothing grabs attention or demands personal investment like having skin in the game through direct and tangible financial incentives.”
Deputy Attorney General Lisa Monaco
As part of the settlement, Danske Bank agreed to “revise its performance review and bonus system to include criteria related to compliance,” she said. “So now, Danske executives with a failing score for compliance will also fail to secure a bonus.”
“Companies should ensure that executives and employees are personally invested in promoting compliance,” Monaco continued. “And nothing grabs attention or demands personal investment like having skin in the game through direct and tangible financial incentives.”
Under its pilot program, the DOJ will offer companies the chance to reduce their fines by the same amount the firm attempts to claw back from employees who participated in the misconduct.
The company entering the settlement will pay the fine but will receive a credit “equaling the amount of compensation the company is attempting to claw back from culpable executives and employees,” Monaco said.
“If the company succeeds and recoups compensation from a responsible employee, the company gets to keep that clawback money—and also doesn’t have to pay the amount it recovered,” she added. “And because we heard from stakeholders about how challenging and how expensive the pursuit of clawbacks can be, the pilot program will also ensure that those who pursue clawbacks in good faith but are unsuccessful are still eligible to receive a fine reduction.”
In her speech, Monaco also mentioned the DOJ’s new voluntary self-disclosure policy, which provides companies incentives to self-report misconduct before “imminent threat of disclosure or government investigation.”
“I want every general counsel, every executive and board member, to take this message to heart: where your company discovers criminal misconduct, the pathway to the best resolution will involve prompt voluntary self-disclosure to the Department of Justice,” she said.
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