Fletcher quote: Leading Minds of Compensation Event

Crises affecting businesses are typically a one-time occurrence or of limited duration. The Coronavirus pandemic is a different kind of challenge. In the current environment corporate board members must deal with a high level of ongoing risk, unknown duration and with an uncertain outcome. In that context we have compensation committees who will be considering many issues, including the following:

Executive base pay:

  • Should compensation committees should insist on executive base pay reductions?
  • If the company is doing furloughs and/or layoffs, should executives be paid back and under what conditions?
  • When compensation if an element of variable pay, and less likely to be earned at this time, should that base pay percentage be increased?

Executive incentive:

  • Should compensation committees adjust performance-based pay to align with an adjusted financial outlook? Virtually every company has adjusted its outlook for 2020.
  • Should companies revise their performance goals now, rather than performing a retrospective? If so, should new goals solely reflect quantitative metrics, or are there relative measures or qualitative measures?

Performance Metrics:

  • Are there alternatives to modifying performance metrics and insuring employees are motivated? Should companies move to quarterly goals? So far, the biggest impact has been in Q2, with some impact in Q3. We don’t know what will happen in Q4.

Perception of compensation changes:

  • If performance measurements and metrics are changed, how will shareholders, employees and proxy advisors perceive those changes? Did the compensation committee consider the interests of all constituents when making what were thought to be sound decisions?.