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  • Writer's pictureRichard Bistrong

"Are you entitled to more pay? My compensation ‘shortcut’ landed me in prison."

This article initially appeared on The FCPA Blog, here and is reposted with the permission from the editor and publisher.

A German court recently ordered a fund manager who was convicted of insider trading to repay almost six times the illicit profits he made by the trades, in addition to a custodial sentence. According to a report from the Financial Times, Judge Moritz Rögler called attention to the “perverse amount of money” involved and the fund manager’s senior position when pronouncing sentence.

When the defendant addressed the court directly, he said he was “offended” by a lower-than-expected pay increase during the period when he made the illegal trades.

According to the FT report, the defendant’s employer “persuaded him to take on greater responsibilities….and promised he would be well rewarded.” But when the work came, and the rewards didn’t, according to his psychiatrist, who also addressed the court, the defendant found “a different way of rewarding himself.” The therapist said the defendant was seeking to avoid conflict over the compensatory issue and instead took an “internal shortcut.”

That “internal shortcut” sounded familiar. When I decided to take ethics and compliance into my own hands, I felt that same sense of distorted entitlement, as not receiving the financial rewards that I thought were well earned and deserved, all in the context of an increased workload.

When I was first on-boarded at my former employer, it was still a small company attempting to emerge out of bankruptcy, with its stock thinly trading over-the-counter. With respect to the workforce, there were just a handful of us in non-manufacturing jobs, and it was in that context, as part of my salary negotiations, that I accepted a financial cap on total compensation consisting of fixed salary and bonus. I thought the cap was extremely generous and one that I could never possibly exceed.

But years later, it was clear I was going to significantly blow past the remuneration cap. In my new role as an international sales vice-president, sales were more lucrative than in my prior role as the VP of U.S. sales.

When I realized I would hit my salary cap well before bonus time, I asked management for relief. The “no” response came quickly. In addition, because the company was now well-financed, re-listed, and enjoying tremendous success, along with addition of new business unit leaders and operating divisions, my annual increase in stock options and grants were also diminishing. On top of that, the company was growing exponentially every year through acquisitions. In other words, I was no longer a big fish in a small pond.

Looking at it now, there was no reason for me to be resentful or bitter at the “no.” The salary cap I had accepted was still generous, and the prior stock awards had appreciated significantly. I should have been grateful for all the enriching years (financially and otherwise) and excited about the future.

Instead I felt entitled. I believed, as the definition says, I was “inherently deserving of privileges or special treatment.” I was traveling all over the world, spending 250 days a year overseas. And I’d taken a tremendous risk when I joined a bankrupt company with a very uncertain future. Why shouldn’t that cap be lifted to allow me all the rewards I thought I was entitled to?

But like the German defendant who resorted to insider trading, I didn’t put up any arguments about why the issue should be reconsidered, and I made no effort to reach a compromise. After that quick “no” to my request for reconsideration, I went straight to self-help. In my case, that meant a series of corrupt transactions with my network of agents and intermediaries.

I’ve since learned from human resource professionals that “there’s always one in every organization,” meaning someone who joined early on, with a high-risk/high-reward compensation plan, and where remuneration had to be adjusted later on to reflect the changed compensation landscape.

What’s the compliance lesson from all this?

Employers, especially in our current environment, should use every opportunity to talk about a new or adjusted compensation schedule if circumstances warrant it. Yes, there might still be disappointment on the receiving end of that conversation if expectations aren’t met; but at least the conversation is also an opportunity to reassure the employee of their continued value to the company.

By dealing with any disappointment directly, it might be possible to diffuse the employee’s sense of entitlement and renew in them a sense of belonging and shared mission that goes beyond a simple bonus plan. It’s an opportunity to remind the employee of all those reasons they were excited to join the company, and how those reasons haven’t changed.

There’s great value in trying to make difficult situations like thwarted or unmet requests for more compensation discussable. It’s a way to avert an “internal shortcut” and to save everyone a lot of time, expense, and what might be irreversible damage down the road.


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