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Performance goals set early this year by the boards of calendar-year companies may be largely irrelevant since the COVID-19 pandemic set the stock market spiraling and companies scrambling. As a result, boards may find it difficult to motivate and retain some executives, compensation consultants and attorneys warn.
Although it’s still early in the year, comp committee members should start thinking about whether to issue discretionary awards to key executives at year-end or adjust performance metrics to make up some compensation shortfall, sources say.
“I think compensation committees are going to have some serious and difficult conversations about to what extent do they adjust performance to take into account COVID-19,” says Peter Lupo, senior managing director and head of the Atlantic region for compensation consulting firm Pearl Meyer. It’s hard to argue, after all, that the pandemic is not an extraordinary one-time event, he says.
“However, if there’s not some very strong communication in the proxy about how the committee came to this conclusion, I think there will be pushback and certainly negative press,” says Lupo.
Experts recommend that comp committees talk to management throughout the year to get an understanding of the company’s performance on goals that were set and how members of management are feeling.
“What’s going to happen on the annual plan is, committees are going to work with management to understand more frequently the performance against goals,” says Lupo. “Are you gaining visibility? Is the marketplace getting better out there? Or is the crystal ball still full of mud?”