The Advisors' Blog

– 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