U.S. Department of Justice Rolls Out New Policy to Incentivize Companies to Implement Executive Compensation Systems that Emphasize Compliance

Update Applicable to:
All businesses.

What happened and what are the details?
During a March 2, 2023, speech in Miami at the annual American Bar Association National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco announced a new policy designed to incentivize companies to factor in executives’ dedication to legal and regulatory compliance in connection with compensation decisions.

The new DOJ policy has two main aspects. First, corporate criminal resolutions will require companies to implement a compensation system that promotes compliance.

Second, under the new DOJ policy, companies will be rewarded for taking action to claw-back funds from executives who were involved in wrongdoing. Suppose a company takes good-faith steps, including bringing legal action, to recover funds from such executives. In that case, the company will be allowed to keep those funds and, in addition, will receive a credit for that amount on the criminal fine imposed in the case. Ms. Monaco also commented that companies that try in good faith but fail to recover funds will still be considered for credit against fines. The Deputy Attorney General did not comment on how this program will interact with the corporate statutes providing for indemnity and advancement of legal expenses for officers and directors, which under typical state law statutes are mandatory and require final, unappealable findings of wrongdoing before funds may be subject to claw-back. Ms. Monaco also did not comment on how the new DOJ policy will interact with indemnity agreements that are commonly in place for directors and high-level officers.

The DOJ published the official written policy on March 3, 2023.

For more information, please see the links below:

DOJ Policy

Article 1 – Article 2

What do employers need to do?
Employers should review the links provided above, examine their policies to evaluate how the focus on compliance and compensation interact, and be on the lookout for any more news regarding this policy. Vensure will continue to provide more updates as more news is received.