Through recent updates to its guidance on corporate compliance, the US Department of Justice (DOJ) is encouraging companies to consider adopting (or updating) policies on compensation clawbacks. Actually seeking to claw back compensation from current or former employees who engaged in or oversaw wrongdoing, however, is not an easy task. In this Advisory, we discuss how compensation clawback policies may intersect and possibly conflict with the world of employment law as well as practical reality, including potential legal bases for clawing back compensation, what clawing back compensation may actually look like in practice, and potential complications.

Background on DOJ Corporate Compliance Guidance

In March 2023, DOJ's Criminal Division updated its guidance on Evaluation of Corporate Compliance Programs. One of the key changes is the emphasis on tying employee compensation systems to compliance, including through potential clawbacks of compensation paid to employees who engaged in or oversaw wrongdoing. To further encourage companies to implement such compensation systems, the Criminal Division has also launched a Pilot Program Regarding Compensation Incentives and Clawbacks. Among other features, the Pilot Program will provide companies that successfully recoup compensation from errant employees with a reduction of fine in the amount equal to any compensation successfully clawed back. In addition, even if ultimately unsuccessful, companies that, in good faith, attempt to...

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