Practitioners Predict Uncertain Future for DOJ’s Clawback Program

On March 23, 2023, top DOJ officials joined white collar lawyers, in-house counsel, and academics at the Global Investigations Review (GIR) Live spring conference in Washington, DC to discuss some of DOJ’s latest policy announcements.

The day’s discussions shed light on DOJ’s approach to individual accountability in investigations of corporate crime, the factors DOJ considers when deciding whether to define a corporate wrongdoer as a recidivist, and the department’s recommendations for engaging with compliance monitors.

A large portion of the day was devoted to DOJ’s newly announced Pilot Program on Compensation Incentives and Clawbacks (the Pilot Program).

As our colleagues reported earlier this month, the Pilot Program is designed to encourage corporations to incentivize compliance by tying executives’ and employees’ compensation to compliance and encouraging corporations to claw back money from culpable individuals. DOJ’s Criminal Division also revised its Evaluation of Corporate Compliance Programs (ECCP) to make explicit that prosecutors, when assessing the effectiveness of a compliance program, will consider whether a company’s compensation and bonus program is designed to incentivize compliance.

Speaking at the GIR Live conference, Deputy Assistant Attorney General Lisa Miller described the Pilot Program as having two components, one that is mandatory and one that is optional. First, as part of all corporate resolutions involving the Criminal Division, DOJ now will require corporations to tie compensation and bonuses to compliance-promoting criteria. This mandatory component also will require corporations to update the department annually on the implementation and administration of their new compensation structures. Second, corporate wrongdoers will have the option of reducing their corporate fines by seeking to claw back compensation from individual wrongdoers. For good faith but unsuccessful attempts to claw back compensation, corporations can earn a 25% cooperation credit.

In separate remarks, Assistant Attorney General Kenneth Polite, Jr. reassured practitioners that the department understands the difficulties companies may face in trying to claw back compensation and bonuses. Companies will have to navigate local employment laws and weigh the costs of litigation against the value of recoupment. Like Miller, Polite emphasized that the Pilot Program does not displace other compliance metrics but rather is meant to encourage companies to use compensation incentives as part of their overall compliance programs.

These caveats did not assuage concerns. Defense attorneys, in-house counsel, and academics questioned whether this new program is workable and whether threatening employees with compensation or bonus clawbacks will have any deterrent effect. This skepticism seems especially well-founded in situations where individuals already face the risk of termination and possible criminal indictment.

Harvard Business Professor Eugene Soltes noted that compensation is just one small piece of what motivates individual employees, and that corporate culture plays a much bigger role in determining how individuals will react to stressful scenarios. Others called the linear connection between money and compliance “not realistic” and argued it is “cynical” to assume individuals act lawfully only when paid to do so.

The department appears clear-eyed about the uncertain path ahead for the Pilot Program. When announcing it earlier this month, Deputy Attorney General Lisa Monaco acknowledged stakeholders’ reservations about the policy. And Miller and Polite followed suit this week in their remarks. Miller allowed that the department will continue to seek engagement from stakeholders and will pivot accordingly, while Polite promised that the department “will assess what works, and what does not,” all to support its broad goals of increasing transparency, deterring crime, and achieving just outcomes.

We’ll keep you up to date here on Enforcement Edge as the Pilot Program plays out in practice. Stay tuned. 

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.