This document provides a summary of a two-part guide on creating an effective compliance-based employee incentive program. It discusses the benefits and risks of such programs, as well as steps companies should take before implementation. Benefits include pleasing regulators, encouraging internal reporting and demonstrating a compliant culture. However, risks include stifling business, mistaken rewards, and conflicting with foreign laws. Companies should shore up compliance programs, review current rewards, and ensure defective performance can be addressed before creating incentives. The second part will discuss evaluating managers and possible incentives.

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COMPLIANCE POLICIES AND PROCEDURES
Guide to Creating an Effective Compliance-Based Employee
Incentive Program (Part One of Two)
By Nicole Di Schino
1
appropriate incentives to perform in accordance
with the compliance and ethics program; and (B)
appropriate disciplinary measures for engaging in
criminal conduct and for failing to take reasonable
steps to prevent or detect criminal conduct.
Similarly, the FCPA Resource Guide describes effective
incentives and disciplinary measures as one of the
“hallmarks of an effective compliance program.” The
DOJ and SEC consider“whether, when enforcing a
compliance program, a company has appropriate and
clear disciplinary procedures, whether those procedures
are applied reliably and promptly, and whether they are
commensurate with the violation,”the Resource Guide
says. It further recognizes that“positive incentives also
drive compliant behavior.”
To meet the government’s expectations, any incentive
program must be“fairly and consistently applied across
the organization,”the Resource Guide warns. “No
executive should be above compliance, no employee
below compliance, and no person within an organization
deemed too valuable to be disciplined, if warranted.”
Bret Campbell, a partner at Cadwalader, Wickersham &
Taft, described a compliance-based incentive program
as an effective strategy for communicating with outside
audiences, the DOJ and the SEC in particular. “Having
some level of compliance tied into compensation in
whatever form that may take is a helpful strategy for
building a company compliance program when it comes
to talking to the government,”he said. “Government and
law enforcement officials will be interested in hearing
about that and like the idea.”
The ongoing efforts by U.S. regulators to curb corrupt
corporate behavior in numerous areas, including
money laundering and anti-corruption, may lead to an
increased focus on incentive programs. Speaking at a
Companies with established and nascent FCPA programs
alike are looking for ways to further enhance a compliant
culture for their employees. The creation of an effective
compliance-based employee incentive program that
both encourages compliant behavior and demonstrates
the company’s compliance commitment is a“cutting
edge issue”with which more and more companies
are grappling, Lucinda Low, a partner at Steptoe
and Johnson, told The FCPA Report.
To assist companies as they consider and develop such a
program, The FCPA Report is publishing a best-practices
guide to creating and implementing an efficient and
effective incentive program. In this, the first part of the
guide, we discuss the risks and benefits of incentivizing
compliance, outline three steps a company should take
before creating an incentive program, and discuss how
a company should measure compliance. The second
article in the series will discuss how companies can
review the compliance-related activities of its senior
and middle management and will provide suggestions
for carrots and sticks a company can use to encourage
compliant behavior. See also“When, Why and
How Should Companies Discipline Employees
for FCPA Violations?,”The FCPA Report, Vol. 1,
No. 8 (Sep. 19, 2012).
Benefits of Incentivizing Compliance
Pleases the Government
One reason to establish an employee incentives program
that is tied to compliance metrics is that the government
regards such efforts as a sign of an effective compliance
program. The U.S. Sentencing Guidelines state that:
[An] organization’s compliance and ethics program
shall be promoted and enforced consistently
throughout the organization through (A)

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Encourages Internal Reporting
“Publicizing the compliance program via incentives
appears to help with whistleblowers because it
encourages a whistleblower to come to the company
first rather than going to the SEC,”Sokenu said. “The
hope is that these incentive programs will encourage
others when they find a problem or when something is
actually about to go wrong. That is the thinking
behind incentives,”he explained.
Companies should“talk about it a lot, talk about it
publicly, highlight the good people, reward the good
people and promote their achievements by making it
known around the organization that certain people
have done good things.” See“Seven Steps Companies
Can Take to Incentivize Internal Reporting of FCPA
Violations,”The FCPA Report, Vol. 1, No. 3 (Jul. 11, 2012).
In addition to the publication of the compliance
program, an incentives program that offers
bonuses for compliant behavior may encourage
internal whistleblowing. A bonus is a“big incentive to
report internally,”Sokenu said. (Financial incentives are
discussed further in the second article of this series.)
Risks of Incentivizing Compliance
Stifling the Business
Creating an incentive program tied to employee
incentives can have the unintended consequence of
slowing business activities, Low warned. “It’s a delicate
balance because a company doesn’t want people to be
so afraid of consequences”that the business is unduly
harmed. Also, a company doesn’t want employees
getting the“message that the company doesn’t care
about growing the business anymore”and only cares
about compliance, she said. “It’s a balance between
ensuring that a clear message is communicated on
compliance and recognizing that is not the only goal of
the company. A company needs to get everything in the
mix that it cares about and try to get that balance right.”
conference on money laundering in September 2013,
Daniel Stipano, deputy chief counsel of the Office of the
Comptroller of the Currency, advised banks to make anti-
money laundering and Bank Secrecy Act compliance part
of their performance reviews and compensation plans,
The Wall Street Journal reported. “If you don’t do that,
you’re really just engaging in empty talk,”Stipano said.
Demonstrates an Ethical & Compliant Culture
Incentivizing compliance demonstrates“that the
compliance program is alive, is well and is healthy,”
Claudius O. Sokenu, a partner at Shearman & Sterling,
told The FCPA Report. Peter Viksnins, director at
Pricewaterhouse Coopers and an adjunct professor
at George Washington University, agreed. “Tying
compensation to compliance is a good way to
demonstrate that ethical culture is important to the
organization,”he said. “People see something as more
important if compensation is tied to it. There is not
much of a better way to demonstrate the importance of
compliance through an organization than to include it
as a percentage of compensation. It has both the carrot
and the stick tied to meeting compliance objectives.”
Can Alter Behavior
Employee incentives can also create more compliant
behavior. Incentives can“change people’s minds and
attitudes about how important compliance is,”Viksnins
said. “If it hits your bottom line, it may change your
behavior in the marketplace,”he explained.
Whether tying compensation to compliance will result
in an increase in compliant behavior can vary depending
on a company’s specific culture, Campbell warned.
But,“as a general rule, people are incentivized by
compensation,”he said. “That’s why we work for
money.” When compensation is tied to compliance,
companies may see a rise in compliant behavior.
“The devil is in the details,”Campbell said. “A company
can move the needle on compliance more or less
depending on how it’s actually implemented.”

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Companies Include Audit Rights in Third-Party
Contracts? (Part One of Three),”The FCPA Report,
Vol. 3, No. 15 (Jul. 23, 2014).
Mistaken Rewards
“One of the bigger risks [of having an incentive program
tied to compliance] is publicly acknowledging that
somebody has received a compliance award for a
particular behavior and then it turns out that he or she
has been noncompliant in some other portion of his
or her role,”Viksnins explained. “That’s a difficult thing.
It’s unpredictable,”he said. “That’s one of the reasons
that companies might like to reward a specific behavior
rather than highlighting the person who performed it.”
Three Steps to Take
Before Creating an Incentive Program
1. Shore Up the Compliance Program
An incentive program will not be effective in a
vacuum. A company must also have an effective, robust
compliance program,“not just from an FCPA perspective,
but from all compliance perspectives,”Sokenu said.
An effective incentive program can supplement a
compliance program that is“rock solid,”he said. It’s a
way for management to positively reinforce an already
compliant culture. See Six Steps for Converting a‘Paper’
FCPA Compliance Program into a Pervasive Culture of
Anti-Bribery Compliance (Part One of Two),”The FCPA
Report, Vol. 2, No. 4 (Feb. 20, 2013); Part Two of Two,
Vol. 2, No. 5 (Mar. 6, 2013).
An incentives program won’t“work as well if incentives
are simply an end of the year thing,”he warned. The
incentive program will work well if it is implemented
in combination with everything else,”he said.
“The foundation has to be right.”
2. Consider Current Rewards and Recognition
Before creating additional incentives or disincentives, a
company should“think about how it rewards people or
Conflicts with Foreign Laws
Creating incentive-based programs in foreign
jurisdictions can be challenging as it can put a company
at risk of violating international labor and employment
laws. “A critical aspect of creating these incentive-
based programs is to ensure that they are legal in every
jurisdiction in which a company intends to deploy them,”
Sokenu said. “Companies should make sure that they
are complying with local laws and they aren’t buying
themselves more trouble than necessary. As such,
the legal department needs to be involved in
their creation,”he advised.
In addition to its in-house legal department, a company
may also need to retain outside counsel, both in the U.S.
and in each jurisdiction where the company is doing
business. When advising clients, Campbell says his firm
provides“the U.S. view but advises the client to run the
issue by local legal counsel to make sure that the
actions they plan to take are acceptable.”
For more on complying with local laws when
operating abroad, see The FCPA Report’s series on data
privacy. “Conflicting Compliance Obligations: How to
Navigate Data Privacy Laws While Performing Internal
Investigations and Promoting FCPA Compliance in the
E.U. (Part One of Three),”The FCPA Report, Vol. 2, No. 1
(Jan. 9, 2013); Part Two of Three, Vol. 2, No. 2 (Jan. 23,
2013); Part Three of Three, Vol. 2, No. 3 (Feb. 6, 2013).
Added Responsibility
An incentives program that isn’t carefully and fairly
administered can cause problems for a company, Low
cautioned. “The company is adding one additional
thing to its performance process that it has to take
into account and document,”she said. When a
company adds any element to its internal policies
and procedures, it must comply with those new
responsibilities. A company that fails to live up to its
own rules and regulations and must confess its failures
to an enforcement agency may find itself in a worse
situation than a company who never implemented such
rules in the first place. See also“When and How Should

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How to Measure Compliance
Companies may shy away from measuring compliance
because it seems like an impossible task. See“Measuring
the Efficacy of Ethics and Compliance Programs,”The
FCPA Report, Vol. 3, No. 12 (Jun. 11, 2014).
Many questions may arise: Can compliant behavior be
quantified? Are quantifiable measures of compliance
even effective? How can a company measure
more subjective matters?
It can be difficult to actually evaluate the completion
of compliance objectives, Viksnins said. However, a
company must avoid only measuring“those things
that are easy to count like the number of messages a
manager sent out to his or her people,”Low said. “Such
measures give the company a limited understanding of
its employees’behavior. A company can look at some
quantifiable metrics, but should also consider things
that are more intangible, that are harder to measure,
that it may have to get at through talking
to people during interviews,”said Low.
Campbell added that“quantitative analyses are easier for
companies to work with, but are often not as meaningful
as a qualitative analysis.”
A company must also ensure that the metrics it
chooses are not creating unintended consequences.
“Measurement should not be tied to the number of
compliance matters, number of cases, or number
of complaints coming into the hotline,”Campbell
warned. “Those are not metrics that should be tied to
compensation [or other incentives], because the more
complaints and information a company has coming in,
the more it is looking at things, the better and healthier
its compliance program looks because it has those
reporting mechanisms in the first place.”
Creating an effective compliance incentive program
for a company requires creativity, but it is doable.
“The company that says that it can’t come up with
performance metrics is often the one that is really not
recognizes people,”Low advised. First,“do the
company’s procedures create disincentives for
compliance?”she asked. Second,“are there ways
to incentivize people, they can be financial or
non-financial, to promote compliance?”
Putting together a program is“complex because it tends
to be very embedded in how a company rewards people
generally for performance,”Low explained. “It often
involves grappling with the current rewards system
and seeing, in the first instance, if something can be
built in to recognize good compliance efforts. Then,
that can turn into a discussion of what the metrics are,”
she said. Creating an effective program“is sometimes
a question of rethinking how a company rewards
people more generally and making more
fundamental changes to that.”
“An incentive program is like everything else in
compliance, it really needs to fit with how the
organization works,”Low added. “It obviously has
to work within the company’s own system for
rewarding people,”she said. “If it isn’t grafted
on properly, it is not going to take.”
3. Ensure That Defective Performance
Can Be Addressed
Companies operating in employee-protective
jurisdictions may find that they have trouble disciplining
employees. A company should ensure that it can take
actions when an employee’s performance is defective,
Low said. “I have had clients that have discovered,
to their chagrin, particularly in certain foreign
operations, that if they haven’t designed their
employee performance compensation system
properly, they are going to have trouble docking
somebody for bad performance because of local
labor and employment law restrictions on
what they can do,”she explained.

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the extent to which they participate in compliance
activities to demonstrate its importance,”Viksnins
said. “For example, many companies have their CEO
or other senior management provide an introduction
to compliance training to demonstrate its importance
to the overall organization.” See“Five Tools Every Chief
Compliance Officer Needs for Effective FCPA Compliance:
Title, Authority, Access, Budget and Culture (Part Two of
Two),”The FCPA Report, Vol. 2, No. 8 (Apr. 17, 2013)
(tone at the top).
Due Diligence
If a professional has a responsibility for completing due
diligence, his or her efforts can be measured and built
into an incentive plan. For example,“if a company has
a plan to complete due diligence on a certain number
of business partners, it can assign a number to that
and a goal for percentage completion,”Viksnins said,
and can award bonuses if the target is met. See The
FCPA Report’s Conducting Effective Anti-Corruption
Due Diligence on Third Parties Interview Series: Gwen
Romack, Director of Global Anti-Corruption at Hewlett-
Packard Company, Vol. 2, No. 20 (Oct. 9, 2013); Principals
of Nardello & Company, Vol. 2, No. 19 (Sep. 26, 2013);
and Alice Fisher, Partner at Latham & Watkins LLP,
Vol. 2, No. 18 (Sep. 11, 2013).
Awareness of Whistleblower Hotlines
Similarly, if an employee has responsibilities with regard
to the company’s whistleblower program, those can be
measured. An employee can be held responsible for
“making sure that people are really aware that they have
a means of anonymous communication of compliance
breaches, making sure that the ethics hotline telephone
number actually works,”Viksnins said. “Those kinds of
things, at least the publicity side, are measureable.
Have you made sure that there are whistleblower hotline
posters put up in the break rooms and are people really
aware that they have that opportunity to communicate
breaches of compliance?” See“Specific Strategies from
Pfizer, Barrick Gold and Other Leading Companies for
Handling Actual and Potential FCPA Whistleblowers,”
The FCPA Report, Vol. 1, No. 11 (Nov. 7, 2012).
there in terms of being committed to doing it,”Low
opined. “If you work at this hard enough, you can
always come up with metrics even though some
aspects obviously are challenging.”
Tangible Compliance Metrics
While measuring tangible compliance methods alone
is often ineffective, there are quantifiable aspects of a
compliance program that a company should build into
its incentive program. Measuring basic aspects of the
company’s compliance program“is particularly useful
at a stage where a company is really trying to get a
program to take hold and wants to see lots of tangible
actions,”Low said. A company with an established
compliance program can also tie incentives to
particular, periodic activities that it
wishes to encourage.
Participation in Training
Measuring training activities is effective both because
such metrics are easily quantifiable and because they are
an important factor in a company’s overall compliance
structure. A company can measure whether and how
often an employee has participated in training or
whether a manager’s employees have participated
in training, Low said. For example, a company can
ask whether 95% of all employees within a particular
manager’s responsibility have received their training
and completed their certifications. “That’s a nice clean
number that companies can get from their online
training programs,”Campbell noted. See“Seven
Practical Tips for Enhancing Anti-Corruption Training
and Four Ways to Measure Its Effectiveness,”The FCPA
Report, Vol. 3, No. 18 (Sep. 10, 2014).
Compliance Messaging and Tone
Although tone at the top and tone in the middle are
subjective matters and difficult to measure, a company
can take some measurements in this area. “One of
the ways I’ve seen folks measure tone is to look at the
frequency of compliance communication from senior
management, people like the CEO, COO et cetera, and

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to compliance, especially when it comes to senior
management. How that occurs varies based on the
company’s compliance program and its overall structure,
but it should be made a part of the company’s overall
assessment process, Low said. “It depends on the
company, you can’t generalize about these things,”
she explained. “It also depends on what type of
assessment process the company has. Do they
use 360 assessments or peer assessments or any
of those sorts of things to capture data?”
For senior managers, companies can capture
information about the manager’s compliance
commitment based on“what they hear back from
middle management and people down below,”Low
said. Conversations about compliance should be a part
of the company’s regular reviews. Talking to a manager’s
employees“will give the company a sense of what tone
the employees are getting,”Low said. A company can
also perform additional interviews to gather information.
Depending on the level of employee, the board may
need to be involved in such assessments, Low said.
Campbell suggested that a company approach
this project in the way it would approach a failure-to-
supervise model, common in the broker-dealer context.
“Look at a manager and look at what is going on within
his or her business unit or functional area,”he suggested.
“If investigations show a failure of messaging, a failure
of communication, a significant amount of not
looking at or identifying issues, that’s one very
soft and somewhat difficult way to measure that
compliance, but it may show that the manager
is not paying enough attention.”
Compliance with Remediation Plans
Completion of remedial plans growing out of internal
monitoring can be measured and used for incentives.
“If a company has performed a compliance assessment
of a particular territory and there was a remediation plan
to do more due diligence on business partners, then the
company could use the number of business partners or
maybe the percentage of completion of that particular
remediation plan as a compliance objective for the
following year,”Viksnins said.
Periodic Activities
A company can also use other periodic compliance
activities as input into its compliance incentive program.
For example,“if a company is transitioning its third-
party contract templates to include language relating to
anti-corruption compliance, that’s a really cumbersome
undertaking and takes a long time,”Viksnins said. “The
speed and effectiveness of implementation of that
transition, which can take years, can be a measureable
component of a compliance program,”he explained.
“If the company has 500 vendor contracts and 200 of
them are due to be renegotiated and don’t currently
have compliance language that has been recommended
or is required, then the company can measure the
progress on putting those contracts into place and
negotiating those things with business partners,”he
said. See our series on third-party contracts,“A Guide
to Anti-Corruption Representations in Third-Party
Contracts: Nine Clauses to Include (Part One of Two),”
The FCPA Report, Vol. 3, No. 13 (Jun. 25, 2014);“Clauses
for High-Risk Situations and Enforcement Strategies
(Part Two of Two),”Vol. 3, No. 14 (Jul. 9, 2014).
Qualitative Compliance Measurements
As noted above, for a compliance incentive program
to be effective, a company must also make an effort
to measure more qualitative or subjective elements
of employees’behavior. A company should try to
get a sense for an employee’s overall commitment