Beyond Carrots and Sticks: Figuring Out Incentives for Better Compliance

Key Takeaways

Regulatory Frameworks Explicitly Require Incentive Structures

• The Federal Sentencing Guidelines, DOJ guidance, and HHS OIG compliance program guidance all emphasize that effective programs must include positive incentives for ethical behavior, not just disciplinary measures for violations.
• These regulatory frameworks ask specific questions about how organizations motivate appropriate conduct and whether incentive structures inadvertently encourage misconduct like the Wells Fargo account-opening scandal.
• Documentation of incentive programs tied to organizational risk assessments demonstrates regulatory commitment and program maturity during government investigations or compliance audits.

Start with Simple Questions in Existing Performance Review Processes

• Compliance officers should partner with HR to add straightforward questions to existing performance reviews, such as “What did you do to support the compliance program this year?” rather than creating complex new scorecards.
• This low-friction approach opens intentional conversations between managers and employees about ethical contributions without requiring immediate compensation linkage or budget increases.
• The incremental strategy of starting with qualitative discussions before adding quantitative metrics builds organizational comfort and generates valuable data about compliance engagement across teams.

Recognition and Praise Are Free Yet Powerful Incentives

• Monetary rewards aren’t the only effective incentives, as recognition, public acknowledgment, and simple praise can significantly motivate ethical behavior without any budget implications.
• Celebrating compliance champions through company newsletters, Slack channels, or executive shoutouts reinforces desired behaviors and makes compliance teams appear supportive rather than adversarial.
• These non-monetary incentives work particularly well for resource-constrained programs and can create cultural momentum that makes subsequent budget requests more successful.

Collective Rewards Generate Team Identity Around Ethical Behavior

• When individual employees demonstrate exemplary compliance conduct, rewarding their entire team through sponsored happy hours, team lunches, or group recognition creates positive peer pressure and shared commitment to ethical standards.
• This approach represents the mirror image of collective punishment used in military training and builds team cohesion around compliance values rather than individual competition.
• Collective incentives maximize impact per dollar spent while generating organic conversations about compliance that extend far beyond formal training sessions.

Sales Compensation Plans Require Compliance Committee Review and Clawback Provisions

• Compliance officers should establish formal review processes where compliance committees examine sales compensation structures to ensure goals are reasonable, attainable, and don’t inadvertently incentivize misconduct.
• Documentation of this proactive oversight satisfies regulatory expectations that organizations actively address perverse incentives in high-risk business areas before problems emerge.
• Clawback provisions allowing recoupment of compensation earned through code violations provide essential enforcement mechanisms and send clear messages about consequences for achieving results through inappropriate means.

Objective Metrics Must Support Subjective Performance Assessments

• While initial conversations about compliance contributions may be qualitative, sustainable programs require objective data points like training completion rates, expense report timeliness, proactive guidance requests, and policy violation records that managers can reference.
• Providing managers direct access to compliance data through dashboards or regular reports enables fair, consistent assessments and removes perceptions of discretionary bias or favoritism.
• The transition from subjective assessments to objective metrics strengthens program credibility, ensures defensibility during reviews, and allows for meaningful year-over-year performance comparisons.

Different Organizational Levels Require Tailored Incentive Approaches

• Front-line employees respond well to recognition, time off, small gift cards, and gamified training elements like Easter eggs or trivia competitions that make compliance engaging.
• Managers may be motivated by quarterly bonuses tied to their teams’ compliance metrics, expense report accuracy, and proactive partnership with compliance functions.
• Senior leadership incentives remain challenging to implement but represent the gold standard, with some organizations successfully gating executive bonuses behind compliance scorecard achievements requiring 90% scores across training, policy violations, and program support metrics.

Corporate Integrity Agreements Create Leverage for Incentive Programs

• Organizations operating under corporate integrity agreements can use external monitor recommendations about incentive programs to secure internal buy-in from skeptical stakeholders who might otherwise resist compliance initiatives.
• Independent experts reviewing programs under CIAs often emphasize moving beyond purely punitive approaches to incorporate positive reinforcement and recognition systems as evidence of cultural transformation.
• This third-party validation helps compliance officers overcome internal resistance and demonstrates to regulators that the organization takes behavioral change seriously beyond minimum compliance requirements.

Third-Party and Contractor Incentives Require Creative Indirect Approaches

• While independent contractors may not participate in employee incentive programs, compliance officers can incorporate them through training completion requirements, vendor selection criteria favoring ethics-aligned companies, and contract provisions around code compliance.
• Publicly celebrating vendors and contractors who demonstrate strong ethical cultures reinforces organizational values even when direct incentive application isn’t feasible due to contractual limitations.
• These indirect methods extend compliance culture beyond organizational boundaries and address regulatory expectations around third-party risk management in increasingly interconnected business ecosystems.

Relationship Building with HR and Business Units Is Essential Infrastructure

• Successful incentive programs depend on strong cross-functional relationships established well before specific initiatives launch, with compliance officers positioning themselves as collaborative problem-solvers rather than territorial department heads.
• Approaching stakeholders with exploratory questions like “How can we think about incorporating this?” rather than demands creates space for joint ownership and creative solutions.
• Early engagement in annual planning cycles, budget processes, and compensation design allows compliance considerations to integrate naturally rather than appearing as last-minute impositions that disrupt established workflows.