U.S. DOJ Weighs In on Corporate Compensation and Clawbacks

First, Monaco reiterated the DOJ’s recent revisions to its corporate self-disclosure programs. The new policy is covered in detail in Sidley’s prior Update, available here. While Monaco made no new policy pronouncements, she reiterated the DOJ’s goal behind the policy: that if a company discovers criminal misconduct, “the pathway to the best resolution will involve prompt voluntary self-disclosure to the Department of Justice.”

Second, Monaco announced DOJ’s first-ever Pilot Program on Compensation Incentives and Clawbacks, which is intended to shift accountability for corporate malfeasance from corporate shareholders to executives and employees determined to be responsible for the misconduct. This Pilot Program has direct links to Attorney General Merrick Garland’s keynote address nearly a year ago, in which he stated that “corporations only act through individuals,” as covered in Sidley’s earlier Update, available here. The Pilot Program comes with two elements:

1. Every corporate resolution involving the Criminal Division must include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system. Under this Program, resolving companies will need to revise their performance and bonus metrics to include compliance-related components. Companies might implement a system whereby executives and staff are required to forfeit their bonuses if they fail to meet certain compliance-related objectives.
2. The Criminal Division will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers. Notably, recognizing the reality of how difficult clawbacks can be, Monaco announced that companies that pursue clawbacks in good faith, but are unsuccessful, may still be eligible for a fine reduction.

Third, Monaco announced two resource commitments to address instances where there is an intersection of corporate crime and national security implications. First, DOJ intends to increase resources to the National Security Division (NSD) through the hiring of 25 new prosecutors and the creation of a new Chief Counsel for Corporate Enforcement. The NSD will also issue joint advisories with the Commerce and Treasury Departments going forward, similar to FCPA guidance issued by DOJ and the SEC. Second, Monaco announced additional investments in the Bank Integrity Unit, with details forthcoming.

Each of the above policy directives is intended to reflect the DOJ’s increased focus on, as Monaco stated, “empower[ing] companies to do the right thing by investing in compliance, in culture, and in good corporate citizenship.” Companies and outside counsel should continue to take note of these developments, because DOJ continues to tailor its policies and practices around corporate malfeasance with emphasis on the importance of strong corporate compliance programs, individual accountability, self-disclosure, and cooperation. Additionally, companies should consider conducting an internal national security risk assessment to include, for example, an assessment of sanctions and export control exposure. Risk assessments along these lines can often help companies better align resources and tailor their processes to address and mitigate national security risks and other compliance risks.