New York Law Journal: A Best-Practices Proposal for Compliance Officers

Articles / December 13, 2007

Washington, D.C., Of Counsel Michael Oxley, New York partner George Stamboulidis, head of the firm's White Collar Defense and Corporate Investigations practice group, and New York associate James Pfeffer, co-authored an article which appeared in the December 13 edition of the New York Law Journal and was posted on

According to the article, "A Best-Practices Proposal for Compliance Officers," while an incentive-based compensation models is "common, and often succeeds in creating welcome incentives for a company's managers, it can create dangerous temptations for a business' compliance workers—those specialists tasked not with maximizing earnings, but rather ensuring that a company 'complies' with laws and regulations—even if the result is occasionally a reduction in short-term corporate profits."

Oxley, Stamboulidis and Pfeffer continue: "In an increasingly regulatory-driven world, the compliance officer must ask many questions, but 'how will the market view this deal,' is not one of them. Of course that is a legitimate question to ask, but it is not her query. And too often, paying compliance officers in equity-based awards (e.g., stock options, etc.), which usually depend for value on the company's financial performance, tempts these executives to approve a deal that they should refuse."

The authors suggest a different approach: "Our overarching goal is to commence a dialogue that addresses how to devise a compensation system free from critical (and unnecessary) conflicts of interest. In particular, we offer . . . a strategy that companies can follow to avoid salary and bonus plans that might actually prompt compliance watchdogs to 'under regulate' the very business units that they are supposed to monitor."

Oxley, Stamboulidis and Pfeffer conclude: "If stock is necessary to do this [reward and retain employees]—in those cases where a company genuinely cannot afford to pay an attractive salary and benefit package—a company might choose to provide stock, ownership of which would vest over a period of time (such as three to five years). Companies might also impose 'claw backs' on equity awards to compliance officers who approve deals that time eventually reveals as violating various criteria."