The Justice Department has a new policy “to shift the burden of corporate malfeasance away from uninvolved shareholders onto those more directly responsible.” Deputy Attorney General Lisa Monaco announced a pilot program that will (1) make sure every corporate resolution involving the Criminal Division will include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system, and (2) provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers. From her speech (emphasis added).

The second new policy to drive compliance-promoting behavior involves innovative approaches to compensation and the use of clawbacks.Now, last September, I announced that the department would examine corporate compensation programs, to shift the burden of corporate malfeasance away from uninvolved shareholders onto those more directly responsible.

Companies should ensure that executives and employees are personally invested in promoting compliance. And nothing grabs attention or demands personal investment like having skin in the game, through direct and tangible financial incentives.

So, at my direction, the Criminal Division studied this issue. I asked them to talk to practitioners, to consult with regulators and to develop guidance, guidance on how to reward corporations with compliance-promoting compensation programs. As Assistant Attorney General Kenneth Polite will talk about in greater detail tomorrow, we are now ready to launch the department’s first-ever Pilot Program on Compensation Incentives and Clawbacks.

Now, the program has two parts.

First, every corporate resolution involving the Criminal Division will now include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system.

This is something we have already debuted in recent Criminal Division cases, with criteria that are tailored to fit the company’s existing compensation program.

For example, as part of its plea agreement in December and in addition to forfeiting $2 billion, Danske, the largest bank in Denmark, agreed to revise its performance review and bonus system to include criteria related to compliance.

So now, Danske executives with a failing score for compliance will also fail to secure a bonus.

Second, under the pilot program, the Criminal Division will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers.

At the outset of a criminal resolution, the resolving company will pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees.

If the company succeeds and recoups compensation from a responsible employee, the company gets to keep that clawback money — and also doesn’t have to pay the amount it recovered.  And because we heard from stakeholders about how challenging and how expensive the pursuit of clawbacks can be, the pilot program will also ensure that those who pursue clawbacks in good faith but are unsuccessful are still eligible to receive a fine reduction.

Our goal is simple: to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible.

Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime | OPA | Department of Justice