Organizations Are Tracking How COVID-19 Could Impact Exec Pay Practices

The coronavirus outbreak has affected many different variables of business, and executive pay isn’t exempt from the situation.

The boards of directors at 95% of responding companies have discussed the issue or will discuss it at an upcoming meeting, according to a Pearl Meyer survey of 233 organizations.

“Boards are laser-focused on the impact of COVID-19 on annual and long-term incentive plans,” said Peter Lupo, senior managing director and Atlantic region head at Pearl Meyer.

Despite this, 85% of organizations have determined it’s still too early to discuss the potential impact of coronavirus—13% said they have had discussions. Of those organizations that said they’ve discussed the possible impacts of coronavirus during their goal-setting process, the most prevalent approaches are:

• Revisit 2020 goals later this year and make any necessary adjustments (39%); and
• Exclude the adverse impact of coronavirus when evaluating 2020 performance (19%).

“For compensation committees that already set 2020 incentive plan goals, many committees have agreed to use or will consider using discretion when determining incentive awards,” Lupo said. “For calendar-year companies, it is too early to consider any plan modifications such as changing plan metrics or goals.”

While most organizations (85%) haven’t discussed how COVID-19 might impact incentive payments to executives from 2020 annual or long-term incentive plans, the organizations that have (10%), are choosing to use discretion to determine appropriate payouts if necessary. Additionally, 9% said they are unlikely to make adjustments or use discretion in determining payouts for 2020 performance.

The survey found that many companies (54%) have incentive plans which would permit the compensation committee to make necessary adjustments to exclude the impact of coronavirus. Of the 46% of companies that said that wasn’t the case, 14% said they are considering modifying the adjustment guidelines.

More than one-third (35%) of companies have begun tracking the financial impact of coronavirus. Additionally, 23% said they aren’t tracking this and 20% said they aren’t tracking it because it’s impossible to break out the full impact.

Overall, public companies are facing a variety of challenges at the moment when it comes exec pay. Lupo said these are the most pressing issues at the moment:

• Potentially modifying incentive plan designs or goals in a way that is supportive of shareholders and other stakeholders and considering proxy advisory firm reactions next year;
• Discussing whether to reset long-term incentive grants that may never result in award payments; and
• Discussing whether equity grants that will be made to board directors should be modified or reduced in value.