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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We may or may not be taking actions with our broad employee population, but should we be considering changes to executive base pay?
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.
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?
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?
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.
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?
With our stock price sharply down, what do we do about the long–term incentive grants we just made (or are about to make)?
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.
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?
With all the cost pressure we are facing, should we be looking to further eliminate executive benefits and perquisites?
Perquisites are out of favor during a crisis and may be easy sources of cost cuts. But health-related benefits are valuable.
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?
How should governance and the role of the Compensation Committee evolve with these special circumstances?
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.
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?
In what ways should a Compensation Committee and senior leaders stay current, how should they monitor the current situation?
A greater need now to stay current. Should stress-test programs for current situation. Need to make informed pay decisions.
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?
We see many articles on executive pay changes, but how should we be addressing outside director pay?
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.
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?
If we are considering mid-year course corrections, what should we expect from institutional shareholders and the proxy advisors?
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.
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?
Are there legislative changes or restrictions we should consider as we make decisions about executive pay?
How do companies decide hiring grants during the crisis?
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.
Is there a fair way to value grants? Should you be using inducement grants for hiring? What is the company approach to grants currently?