Austal: The downside of stock compensation

Austal is an Australian company with a subsidiary in the United States that constructs ships for the Navy. In 2023, three employees were indicted by the Department of Justice and charged by the Securities and Exchange Commission for fraud. The case describes how costs for Littoral Combat Ships were artificially lowered to boost earnings. The case also includes general background information on incentive compensation so that students can understand how it typically works, as well as the specifics of Austal's variable compensation for its key management personnel. This allows for a discussion of how, in this case, incentive compensation was the primary driver for Austal USA's president, director of Financial Analysis, and director of the LCS Program to commit fraud.