Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP 35 | Compensation, Compliance Incentives and Clawbacks – DOJ Pilot Program and the SEC Clawback Rule Compensation, Compliance Incentives and Clawbacks – DOJ Pilot Program and the SEC Clawback Rule Katherine Stoller, Melisa Brower, and Daniella Villatoro Insights On March 2, 2023, the United States Department of Justice (DOJ) announced the launch of its Pilot Program Regarding Compensation Incentives and Clawbacks (Compensation Pilot Program). Focused on tying employee compensation to compliance, 1 the Compensation Clawback Program is meant to "prevent corporate crime before it occurs," and to "deter criminal conduct, incentivize the development and implementation of effective compliance programs, and promote ethical corporate cultures." Deputy Attorney General Lisa Monaco stated that DOJ's goal is to "empower companies to do the right thing, by investing in compliance, in culture and in good corporate citizenship—while at the same time empowering [DOJ] prosecutors to hold accountable those who don't follow the law." 2 This three-year pilot program requires companies that enter into criminal resolutions to implement compliance-related performance criteria in their incentive compensation system (Compliance Enhancements), which may include (without limitation) the following criteria: "(1) a prohibition on bonuses for employees who do not satisfy compliance performance requirements; (2) disciplinary measures for employees who violate applicable law and others who both (a) had supervisory authority over the employee(s) or business area engaged in the misconduct and (b) knew of, or were willfully blind to, the misconduct; and (3) incentives for employees who demonstrate full commitment to compliance processes." 3 Under the Compensation Pilot Program, if a company fully cooperates, remediates and adopts or operates an appropriately implemented program to recoup compensation, DOJ will reduce fines for companies that seek to recoup compensation from employees who engaged in wrongdoing connected to the conduct under investigation. Specifically, DOJ may reduce fines by 100% of the compensation recouped during the period of the resolution or 25% for companies that seek to recoup compensation in good faith (even if ultimately unsuccessful). Under the Compensation Pilot Program, if a company fully cooperates and remediates, and adopts or operates an appropriately implemented program to recoup compensation, DOJ will also reduce fines for companies that seek to recoup compensation from employees who engaged in wrongdoing connected to the conduct under investigation. In these circumstances, the fine imposed by DOJ may be reduced by 100% of the compensation recouped during the period of the resolution. Companies that seek to recoup compensation in good faith (even if ultimately unsuccessful) may also receive a fine reduction of up to 25% of the compensation they attempted to recoup. 1 See U.S. Department of Justice, The Criminal Division's Pilot Program Regarding Compensation Incentives and Clawbacks," https://www.justice.gov/opa/speech/file/1571906/download (March 3, 2023). 2 See U.S. Department of Justice, (Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime," https://www.justice.gov/opa/ speech/deputy-attorney-general-lisa-monaco-delivers-remarks- american-bar-association-national (March 2, 2023). 3 See U.S. Department of Justice, "The Criminal Division's Pilot Program Regarding Compensation Incentives and Clawbacks," https://www.justice.gov/opa/speech/file/1571906/download, (March 3, 2023).