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Despite the economic shutdown that occurred during the early stages of the COVID-19 pandemic, a handful of companies known as the “stay-at-home stocks” saw outsize growth as the broader stock market took a dive in early 2020. At these companies, many CEOs received equity awards in line with their company’s performance, with a large portion of long-term incentive awards consisting of stock awards.
However, as the economy reversed course from its low in early 2020, not all the stay-at-home stocks have been able to maintain their skyrocketing trajectory. While some stocks continue to grow from their pandemic momentum, others have since taken a tumble.
Compensation experts say the rollercoaster shows the risk associated with equity compensation in a highly volatile environment. When devising compensation plans, boards should make sure they are comfortable with the potential for stock price fluctuation and how it might impact incentive plans.
CEOs who don’t receive annual equity awards are still likely to feel the hit when share prices plummet, since many of those executives already own shares issued through up-front grants that are meant to last many years, according to Aalap Shah, a managing director at Pearl Meyer.