– Lynn Jokela

As COVID-19 health and safety issues continue to mount and be a matter of first priority, compensation committees are faced with executive pay issues.  Reports of changes to compensation also continue and this blog from Equilar provides some examples of compensation-related disclosures so far.  The blog says that Equilar will continue providing updates to the post throughout the 2020 proxy season…

– Lynn Jokela

A couple of weeks ago, I blogged about implications and approaches to dealing with the effect of the COVID-19 pandemic on executive compensation plans.  As companies and boards try to get their arms around this unprecedented situation, Semler Brossy has issued a memo discussing a range of alternatives for dealing with incentive compensation.

The memo provides possible alternatives for companies where an incentive plan has already been approved and separate alternatives to consider if a plan hasn’t yet been approved – the alternatives are further broken down by annual and long-term incentives.  Here’s some of what the memo says about annual incentive plans already approved:

– Let the plan play out as is, and communicate your intent to evaluate performance and exercise discretion at year-end – establish a framework for this use of discretion, with factors such as relative performance and historical performance

– Make no immediate changes, but communicate your intent to reset goals once you have clarity into the near future – presuming there is sufficient stability by mid-year.

– Establish an additional plan with stretch but realistic targets – this wouldn’t replace the existing short-term incentive opportunity but would be used to motivate executives to work toward hitting important strategic or financial goals – then make sure to net payouts earned against payouts from the original plan

– Lynn Jokela

Yesterday, I blogged about the need to all consider available options for addressing the impact of the current crisis on compensation programs.  With all the market volatility, many are left wondering how long it will take for a market to recover and how long recent incentive grants will remain underwater.  This recent Shearman & Sterling blog dives into option repricing and exchange programs and says there may be renewed discussion about them – something we haven’t heard much about since the 2008 financial crisis.  No doubt though – many shareholders frown upon repricing and exchange programs.

It might be early and a repricing or exchange program won’t be realistic for all companies, but some may want to at least think about it.

The memo walks through different approaches for those that do want to consider such a program and lists the pros and cons for each.  The memo also notes topical areas for consideration such as NYSE and Nasdaq shareholder approval requirements, ISS’s position on these programs, U.S. accounting treatment, U.S. tender offer rules, SEC disclosure rules, share registration considerations and tax treatment.

– Lynn Jokela

The coronavirus crisis and market volatility has left many wondering what they can do about compensation decisions made before the crisis ensued and if they haven’t already been made, what they should do.  This blog from Pay Governance says two things have made this crisis different: the timing of events and rigidity of say-on-pay protocols.  Because the crisis is different this time around, the blog says “everything should be on the table” – consider, discuss, deliberate everything – that includes:

– Exercise of discretion

– Addressing mid-stream incentive plans

– Reassessing equity grants

– Re-think long-term performance periods

– Dealing with out-of-the-money share awards

The blog touches on each of these considerations – which should help comp committees as they begin, and what will likely be, ongoing deliberations.

For compensation committees looking for resources, here’s a memo from Skadden that also runs through recommendations to consider…

– Lynn Jokela

Not long ago, I blogged about EVA metrics and how they may inadvertently reward short-termism. The analysis was qualitative and here’s a memo from Ira Kay and the folks at Pay Governance analyzing EVA metrics from a quantitative perspective. Here, Pay Governance found that EVA may work well for some companies but not all.

The memo’s analysis tested a simple theory: that companies with positive or higher percentage growth in EVA should experience positive or superior levels of TSR. What did they find?

– Of all metrics reviewed, EBITDA growth had the highest correlation with TSR – it was more highly correlated than either EVA growth or EVA momentum

– EVA growth and EVA momentum have similar but not superior correlations to TSR as GAAP metrics such as sales growth, EPS growth and others

– EVA growth and EVA momentum show very low or negative correlation to TSR for companies in certain sectors such as energy and real estate investment trust

The memo says Pay Governance found that it’s possible that EVA metrics may produce a number of “false negatives” – meaning poor EVA results in the ISS test but positive TSR.

– Lynn Jokela

A couple of weeks ago, I blogged about an unusual compensation program adopted by one company and this Meridian blog discusses another program – one where the CEO takes $1 in salary along with large equity awards.  The blog discusses advantages, challenges and logistics – perhaps during the current cycle it might be something more comp committees consider – and CEOs may like the symbolism.  Some of the advantages mentioned in the blog include:

– Sends a clear signal of faith in the future of the company – CEO believes in the company’s long-term value potential

– The program will underscore management’s commitment to managing cash

– Focus is long-term thinking – value realized through innovation and expansion take precedence over short-term margin expansion or efficiency capture

– Lynn Jokela

A new poll from Pearl Meyer shows that although most companies haven’t considered how the COVID-19 pandemic will impact executive compensation in 2020 – many have considered the potential impact when setting incentive plan goals for 2020.  Among the study’s findings:

– For committees that have discussed the potential impact on their goal setting process, the most prevalent approaches are to revisit 2020 goals later in the year and make necessary adjustments or to exclude the adverse impact of coronavirus when evaluating performance

– Most comp committees haven’t discussed how the coronavirus might impact executive incentive payments from 2020 annual or long-term incentive plans

– More than a third of companies have begun tracking the financial impact of coronavirus

Responses represent close to real-time data – the survey included responses from 233 public company and private company participants over the last week – March 10-16.

– Lynn Jokela

Tune in tomorrow for the webcast – “The Top Compensation Consultants Speak” – to hear Semler Brossy’s Blair Jones, Pay Governance’s Ira Kay and Deloitte’s Mike Kesner discuss what compensation committees should be learning about and considering today – importantly including the impact of the COVID-19 pandemic on executive compensation and incentive practices, including goals, timing and incentive plan share usage amid this rapidly changing environment with continued uncertainty.  Be sure to tune in!

– Lynn Jokela

Tune in tomorrow for the webcast – “The Top Compensation Consultants Speak” – to hear Semler Brossy’s Blair Jones, Pay Governance’s Ira Kay and Deloitte’s Mike Kesner discuss what compensation committees should be learning about and considering today.  Discussion will cover the impact of the COVID-19 pandemic on executive compensation and incentive practices, including goals, timing and incentive plan share usage amid this rapidly changing environment with continued uncertainty.  Don’t miss it!

– Lynn Jokela

Yesterday I blogged about some of the implications COVID-19 is having on compensation plans.  Here’s more information from Pearl Meyer’s blog – the first blog discusses equity awards in the wake of the health pandemic and has four approaches for companies that haven’t yet made their annual equity awards.  The second blog is a good reminder for all of us not to panic and suggests this will likely be the year to exercise discretion.