CRITICAL COVID QUESTIONS: 

EXECUTIVE PAY & GOVERNANCE

As both executives and compensation committees lead in this time of crisis, there are ten key questions they are asking. Click through to discover what they are. 



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1.

We may or may not be taking actions with our broad employee population, but should we be considering changes to executive base pay?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Many companies hit hard by the impact of COVID-19 are forced to consider  cost-cutting actions. Executive pay cuts (or the absence of them) send a  message about sharing the impact.

CRITICAL CONSIDERATIONS

Are executive pay cuts fair relative to workforce givebacks? Are these  cuts indefinite or time-limited? Are you sending the right signals to the  organization with your actions?‚Äč

2.

We set short-term incentive goals at the beginning of the  year, but the world has changed. What do we do with  executive short-term incentives?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Goals set at the beginning of year may now be irrelevant. Company  performance may be expected to recover during the second half of year.  Possible lack of established process for exercising judgment to adjust for  unforeseen events.

CRITICAL CONSIDERATIONS

How far off plan are you? Is the impact limited to a geography or  business line or is it global? Will you have more clarity in 30 to 60 days?

3.

With our stock price sharply down, what do we do about the long–term incentive grants we just made (or are about to make)?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Stock prices have likely dropped well below recent highs. Long-term  goal-setting and goal achievement is even murkier than usual. There may be pressure to re-grant during the dip.

CRITICAL CONSIDERATIONS

Where are you in the grant cycle? How are you performing relative to  your peers? If you are uncertain on how to proceed, are you willing to wait for more clarity?

4.

With all the cost pressure we are facing, should we be looking to further eliminate executive benefits and perquisites?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Perquisites are out of favor during a crisis and may be easy sources  of cost cuts. But health-related benefits are valuable.

CRITICAL CONSIDERATIONS

Are there programs that are a cash drain? Can you separate “nice-to-haves” from essential programs? Are there better places  to focus to conserve cash?

5.

How should governance and the role of the Compensation Committee evolve with these special circumstances?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Pressure to make changes now which may or may not be correct. Need  to establish strong processes now for year-end decisions; ensure strong  governance to manage reputational risk.

CRITICAL CONSIDERATIONS

Are you prepared to use all your levers to pay appropriately for this  situation? How will key stakeholders react to your decisions? Are you  being pro-active enough?

6.

In what ways should a Compensation Committee and  senior leaders stay current, how should they monitor the  current situation?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

A greater need now to stay current. Should stress-test programs for  current situation. Need to make informed pay decisions.

CRITICAL CONSIDERATIONS

Do you have the information you need to make informed 2020/2021  pay decisions? How frequently are you getting updated market  information? Are you really using all the “tools” you can access to  stay abreast of the situation?

7.

We see many articles on executive pay changes, but how  should we be addressing outside director pay?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Director pay actions should be considered alongside changes to employee  and executive pay. Directors are investing significant time to help  management with this crisis, but should also lead by example.

CRITICAL CONSIDERATIONS

What is the value of cash compensation to directors in this situation?  How can we cut Board pay when their commitment is even higher than  in previous years?

8.

If we are considering mid-year course corrections, what  should we expect from institutional shareholders and the  proxy advisors?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Need to make decisions with limited guidance from proxy advisors and  institutional shareholders. Some changes would be viewed favorably and  others not, in a “normal” year. Need for clear disclosure.

CRITICAL CONSIDERATIONS

How can the company best describe its actions? Is the company  comfortable with actions irrespective of proxy advisors? What is view  of top ten shareholders?

9.

Are there legislative changes or restrictions we should  consider as we make decisions about executive pay?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Legislation (e.g., US C.A.R.E.S. Act) has real consequences for executive  pay; additional legislation (local, state, or federal) may be on the way.

CRITICAL CONSIDERATIONS

Will executive pay influence accessing the stimulus? Should pay design  change if quantum cannot?

10.

How do companies decide hiring grants during the crisis?

1. EMPLOYEE SAFETY

RANGE OF PRESENTING ISSUES

Current stock grants are underwater but hiring company stock is down  as well. Sign-on grants could offer some candidates an opportunity for a  future windfall as stock prices recover.

CRITICAL CONSIDERATIONS

Is there a fair way to value grants? Should you be using inducement  grants for hiring? What is the company approach to grants currently?