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Practitioners Express Doubts About DOJ's New Clawback Initiative

On March 23, 2023, key figures from the Department of Justice (DOJ) convened with white-collar attorneys, corporate legal teams, and scholars at the Global Investigations Review (GIR) Live spring conference in Washington, D.C. The gathering focused on the DOJ's recent policy updates, including its approach to individual responsibility in corporate criminal investigations, criteria for labeling a corporation as a repeat offender, and guidelines for interacting with compliance monitors.

Spotlight on the Pilot Program

A significant part of the conference was dedicated to discussing the DOJ's newly launched Pilot Program on Compensation Incentives and Clawbacks. This initiative aims to motivate companies to link executive and employee pay to compliance measures and to recover funds from individuals found guilty of misconduct. The DOJ's Criminal Division has also updated its Evaluation of Corporate Compliance Programs (ECCP) to clarify that the effectiveness of a company's compliance program will be assessed based on whether its compensation and bonus structure encourages compliance.

Two-Pronged Approach

Deputy Assistant Attorney General Lisa Miller outlined the Pilot Program as having two main elements: one mandatory and one optional. Firstly, all corporate settlements involving the Criminal Division will now mandate that companies align their compensation and bonuses with compliance-promoting criteria. Companies will also be required to provide annual updates to the DOJ on the implementation of their new pay structures. Secondly, corporations have the option to reduce their fines by reclaiming compensation from individual wrongdoers. Companies making good-faith but unsuccessful efforts to recover funds can earn a 25% cooperation credit.

Challenges and Concerns

Assistant Attorney General Kenneth Polite, Jr. acknowledged the complexities companies might encounter in reclaiming bonuses and compensation, such as navigating local employment laws and evaluating the cost-benefit ratio of litigation versus recovery. However, both Miller and Polite emphasized that the Pilot Program is not intended to replace other compliance metrics but to supplement them.

Skepticism Abounds

The new program has been met with skepticism from defense lawyers, corporate counsel, and academics. Questions have been raised about the program's feasibility and whether the threat of clawbacks would serve as an effective deterrent, especially when individuals already face the possibility of job loss and criminal charges. Harvard Business Professor Eugene Soltes pointed out that compensation is just one factor that influences employee behavior, and that corporate culture has a more significant impact.

The Road Ahead

The DOJ seems aware of the uncertainties surrounding the Pilot Program. Both Miller and Polite indicated that the department is open to feedback and will make adjustments as needed to achieve its overarching goals of enhancing transparency, deterring criminal activity, and ensuring fair outcomes.