May 26, 2020
Vanguard’s View about Executive Pay during Covid-19
– Lynn Jokela
Recently, Vanguard issued its insight about executive pay during Covid-19. Vanguard’s general message is that directors should be guided by good judgment on critical matters such as financial survival and workforce safety as well as longer-term factors that align with a company’s purpose and strategy. The asset manager provided the following pay-related considerations for boards:
– Variable pay: the asset manager may support plans in which variable compensation makes up the majority of executives’ total pay and is measured with a long-term focus beyond the next quarter or year.
– Performance target adjustments: Vanguard doesn’t believe it’s appropriate for compensation committees to adjust or create “easier” performance targets – it wants at-risk pay to remain at-risk.
– Relative performance metrics: Vanguard views these as crucial amid market downturns. In volatile markets, comparing relative performance metrics with those of a relevant set of peers helps guard against outsized payments for market recovery versus true long-term company outperformance.
– Social perspective: the asset manager encourages boards to apply both a financial and, increasingly, a social lens when considering how executive pay, human capital, or capital allocation decisions factor into the overall context and public perception of a company’s practices.
– Use of discretion: Vanguard welcomes adjustments to timing or amount of payouts to better align with the experiences of shareholders and stakeholders. When applying discretion, the asset manager will be looking for disclosure about the decision process and rationale.