The Advisors' Blog

– Lynn Jokela

For additional thoughts on what to do about incentive compensation during the pandemic – with continued economic uncertainly – a Mercer memo provides examples.  Here’s a few involving adjustments to the equity grant formulas:

Consider use of a collar: Continue to base the number of shares on the stock price (value-based guideline) or number of shares (fixed-share guideline), but set a floor and maximum for the number of shares that can be awarded — for example, + or – 20% of the estimated pre-stock price drop (or prior year’s) number of shares or share value.

For value-based grant guidelines, consider basing the number of shares on an average stock price over a longer period of time (for example, the prior 90 days) to smooth out recent volatility. (This could also be done to assess compliance with stock ownership guidelines.)

For fixed-share grant guidelines, consider whether a temporary increase is warranted to keep compensation competitive with peers and retain executives.