Policy Compliance
2 terms in Policy
Compensation Audit Requirements
#Compensation audit requirements define the mandatory reviews, checks, and examinations that must be performed on incentive compensation data, calculations, payments, and processes to ensure accuracy, consistency, and compliance with plan documents and organizational policies. Audits may be conducted internally (by compensation operations, internal audit, or finance teams) or externally (by independent auditors as part of SOX compliance or financial statement audits). Common audit procedures include recalculating a sample of payments from source data through to final disbursement, verifying crediting accuracy against CRM transaction records, testing system logic against plan document specifications, reviewing exception and override approvals, and confirming that terminated participants received correct final payments. Audit requirements should specify frequency (monthly, quarterly, annually), scope (statistical sampling vs. full population), documentation standards, and remediation timelines for identified deficiencies.
A publicly traded company's internal audit team performs quarterly compensation audits. In Q2, they randomly sample 40 of 500 incentive payments and recalculate each from CRM transaction data through crediting rules and rate tables to final payment. They find 2 discrepancies: one $1,200 overpayment due to a duplicate credit and one $800 underpayment from an incorrect territory assignment. Both are corrected, and the root causes (duplicate detection gap and territory mapping lag) are escalated to Sales Ops for systemic fixes.
Section 15.1 — Audit Requirements: The Company shall conduct quarterly audits of incentive compensation calculations and payments. Each audit shall include: (a) recalculation of a statistically significant random sample (minimum 10% of payments); (b) verification of crediting accuracy against source transaction records; (c) review of all exception approvals granted during the period; (d) validation of terminated participant final payment calculations. Audit findings shall be reported to the Compensation Committee within 30 days, and corrective actions shall be completed within 60 days.
Compensation Audit Findings Report — documents audit scope, sample size, discrepancies found by category (overpayment, underpayment, crediting error), financial impact, root cause analysis, corrective actions, and trend comparison to prior audits.
Non-Compliance Handling
#Non-compliance handling establishes the procedures, escalation paths, and consequences for situations where compensation plan rules, administrative processes, or governance requirements have not been followed. Non-compliance may involve participants (sandbagging deals, misrepresenting customer information, violating ethical selling guidelines), administrators (unauthorized plan modifications, processing payments without proper approval, failing to maintain documentation), or managers (overriding system calculations without authorization, approving payments outside their authority). The non-compliance handling framework defines how violations are detected (monitoring systems, whistleblower reports, audit findings), investigated (fact-gathering procedures, participant rights), adjudicated (decision authority and burden of proof), and remediated (corrective actions ranging from training to plan forfeiture to employment termination). Clear non-compliance procedures protect both the organization and participants by ensuring consistent, fair, and documented treatment of violations.
An audit reveals that a sales manager approved 6 exception payments totaling $45,000 over the past quarter, all for his own team members, without obtaining the required VP-level sign-off. The non-compliance procedure is activated: HR investigates and finds the manager misunderstood the threshold requiring VP approval. Corrective action includes mandatory governance training, retroactive VP review of all 6 payments (4 confirmed, 2 reversed), and a note in the manager's file. No intent to defraud is found, so no disciplinary action beyond training is taken.
Section 15.2 — Non-Compliance Procedures: Suspected violations of compensation plan rules or administrative procedures shall be reported to the Compensation Committee or the Ethics Hotline. Upon receipt of a report, the Committee shall: (a) initiate a fact-finding investigation within five (5) business days; (b) provide the subject of the investigation an opportunity to respond; (c) determine findings and appropriate corrective action within thirty (30) days; and (d) document the outcome. Corrective actions may include retraining, payment adjustment, plan modification, or referral to HR for disciplinary action up to and including termination.
Non-Compliance Incident Register — logs each reported or detected violation with date, category, affected parties, investigation summary, finding, corrective action taken, and status (open, resolved, escalated).