The Department of Justice has announced the launch of its first-ever Pilot Program on Compensation Incentives and Clawbacks.
In March 2 remarks at American Bar Association’s annual National Institute on White Collar Crime event, Deputy Attorney General Lisa Monaco said the program will have two parts. “First, every 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.”
For a recent and novel case study, chief compliance officers and in-house counsel should turn to Danske Bank’s December 2022 plea agreement with the Criminal Division, in which Denmark’s largest bank “agreed to revise its performance review and bonus system to include criteria related to compliance,” Monaco noted. “Danske executives with a failing score for compliance will also fail to secure a bonus.”
Under the second part of the pilot program, the Criminal Division “will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers,” Monaco said. “At the outset of a criminal resolution, the resolving company will pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees.”
If the company recoups compensation, it gets to keep that clawback money, and doesn’t have to pay the amount it recovered, Monaco said. “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,” she added.
In remarks made at the ABA conference the following day, Assistant Attorney General Kenneth Polite provided further clarity: “We expect companies that use these programs to address not only employees who engaged in wrongdoing in connection with the conduct under investigation, but also those who had supervisory authority over the employees or business area engaged in the misconduct, and knew of, or were willfully blind to, the misconduct.”
“We recognize the difficulties companies may face when attempting to clawback compensation,” Polite added. “That is why, if a company’s good faith effort is unsuccessful by the time the resolution term ends, our prosecutors will have discretion to accord a fine reduction of up to 25 percent of the amount of compensation that has been sought.”
“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,” Monaco 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.”
Empowering Compliance Officers
“[T]hese policies empower general counsels and compliance officers to make the case to company management, to make the case in the boardroom that investment in a robust compliance program, including a forward-leaning compensation system, is money well spent,” Monaco concluded.
Implementation of the pilot program follows Monaco’s announcement last September that the DOJ would examine compensation programs “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,” Monaco said.
Polite said the pilot program will be in effect for three years, “allowing us to gather data and assess its effectiveness and also aid other components and offices in considering this important issue. For now, this is another example of the Criminal Division’s ability to incentivize good corporate citizenship and encourage greater individual accountability, which remains our number one priority.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.