Should Firms Be Allowed to Indemnify Their Employees for Sanctions?

Policymakers have questioned whether firms should be allowed to indemnify their employees for personal sanctions for corporate crimes. This article provides the first formal analysis of this form of indemnification. Targeting employees with unindemnifiable sanctions carries the social cost of exposing employees of law-abiding firms to the risk of mistaken government prosecution. Deterrence is typically achieved more efficiently by sanctioning the firm alone. We find the circumstances under which the government should additionally sanction employees to be quite limited and the circumstances under which the government should ban indemnification of these sanctions to be more limited still. One circumstance is when an unindemnifiable employee sanction provides prosecutors with leverage to adjust the employee's sanction in exchange for his cooperation against the firm