Risk & Compliance

Another Increase in Compliance Costs

Compliance and ethics officers are getting paid bigger salaries. Put the blame on Boesky, Enron and, of course, Sarbox.
Sarah JohnsonSeptember 21, 2006

The Sarbanes-Oxley Act is often blamed for a dearth of accountants, and their new found leverage to demand more money from their employers. The Act has also given rise a boost to another corporate denizen: compliance and ethics officers, who increasingly are being invited into the executive suite, and greeted with bigger paychecks.

Compensation for compliance and ethics officers has risen more than 12 percent since last year, according to Salary.com and the Ethics & Compliance Officer Association. Since the fallout from Enron and other corporate scandals—and the advent of Sarbox—companies have begun to coddle these managers, giving them titles like “Chief Ethics Officer” and having them report, in some cases, directly to the board of directors. “The quality of the individual has been upgraded,” says Keith Darcy, executive director of the ECOA.

The top global ethics and compliance executives make a median annual salary of $206,800, cushioned by $132,100 in median long-term incentives. The top domestic executives specializing in ethics and compliance earn $180,600 for their median annual salary, with $81,600 in median long-term incentives, such as incentive stock options, nonqualified stock options, and restricted stock. These long-term incentives have declined from last year’s report, which the survey-takers attribute to hiring awards. Companies are increasingly using full value shares through stock bonuses, restricted stock, or performance shares to compensate their compliance officers.

The compliance and ethics officer is fairly new to the corporate world as the role did not exist 30 years ago. The position evolved after the Foreign Corrupt Practices Act was passed in 1977, and companies continued to add the position after corporate scandals were made public during the next three decades. Indeed, the insider trading convictions of Ivan Boesky and Michael Milken, and the subsequent creation of the Defense Industry Initiative on Business Ethics and Conduct in 1986, helped spawn more corporate compliance officers.

The unraveling of corporate accounting issues at WorldCom, Global Crossing, and Enron has fueled the importance of compliance officers, as does this year’s headlines about the increasing number of investigations into companies stock option backdating practices, Darcy says. “Since Sarbanes-Oxley was passed in the summer of 2002, the risk of doing business has gotten greater.

ECOA’s membership has more than doubled since 2002, when the ECOA had about 600 members. In addition to raising the prominence of compliance officers, more companies are creating compliance committees filled with risk mangers, Darcy adds.

While companies across the board have decided to pay their compliance officers more, they’re inconsistent about who’s the boss. A minority of compliance officers report to the CFO, according to Darcy. More compliance officers report to a general counsel, chief operating officer, or the board of directors. “My feeling is there should be a dotted line with the compliance officer reporting to the board of directors, if not a direct line structurally,” Darcy says.

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