Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP 39 | Compensation, Compliance Incentives and Clawbacks – DOJ Pilot Program and the SEC Clawback Rule Questions to Consider • Is management sufficiently incentivized to prioritize compliance issues and ensure robust internal controls? • What assessment systems does the company have in place to monitor compliance functions? CONCLUSION Compensation can be an effective tool to drive management performance. Both Congress and DOJ have signaled an intent to use incentive compensation, along with the threat of clawback, as a way to encourage companies to prioritize compliance and hold individual executives accountable for misconduct and reduce the impact on shareholders. Although the Compensation Pilot Program is in its early stages and not immune to challenge, 6 establishment of the program signals greater focus by DOJ on using compensation as both an incentive and means to hold individual employees accountable for wrongdoing in the event of a compliance breach. Companies must ensure they are well positioned to comply with new rules surrounding SEC clawbacks, but also, to ensure their incentive compensation and recoupment programs will fit the company's needs. Proactively laying the foundation now to be able to mitigate against potential future liability is prudent and, increasingly, expected by enforcement agencies. Closely monitoring enforcement priorities, engaging in frequent assessments of internal controls surrounding compensation and compliance, and ensuring appropriate policies are in place to hold wrongdoers accountable are ways in which companies can stay current on whether such systems are adequately addressing a company's needs. 6 There is risk that U.S. state and international employment laws may prohibit lawsuits seeking clawbacks of compensation that is determined to be earned wages.