The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

March 25, 2019

How to “Recession-Proof” Your Comp Programs

Liz Dunshee

Last week, economists & investors were buzzing about whether an inverted yield curve and Fed actions were cause for concern. And while the consensus among that set seems to be that nobody knows exactly when a slowdown will happen or how severe it will be, that doesn’t mean comp committees should ignore the possibility that it’ll happen. As I’ve recently blogged – and reiterated – preparing for a downturn would be time well-spent. When it comes to protecting the value of equity compensation programs, this “Compensation Cafe” blog suggests a couple of ways to get started:

It is not too soon to plan for a recession. Performing an equity compensation risk assessment is a good place to start. Review both your strategy and tactical processes for granting stock options and RSUs. Evaluate whether your award features, vesting schedules and exercisability are optimally situated to weather the transformation. Most importantly, prepare now for the possibility of making an extreme course change in 2020 or 2021. Building a new approach, educating your board and getting approval from your shareholders takes more time than you may expect.

There are also ways to “recession-proof” your equity compensation programs. Most of these techniques are outside of common market data and boiler-plate plan documents. They also require a new understanding of the potentials and realities of stock-based compensation. Terms may need to change. Vesting may need a new look. Your entire program may need to be refitted and replaced. Regardless of the new approach, it will require some deep expertise.