The Advisors' Blog

– Liz Dunshee

As I recently blogged, ISS is already saying that COVID-related compensation decisions will dominate next year’s proxy season. That means proxy advisors and shareholders will be looking even more closely at your CD&A to understand the rationale for pay decisions – and how they fit into your broader “ESG” story, especially with respect to your “human capital” practices and decisions.

As this Willis Towers Watson memo points out, shareholders “may be less inclined to support companies taking what they perceive to be disproportionate actions to protect executives at the expense of or in contrast with others.” The memo notes that these social and governance factors could attract extra scrutiny this year:

– Furloughs
– Reductions in force
– Reliance on government aid programs
– Broad employee pay-cuts
– Outbreaks at sites or among employee populations
– Customer safety
– Reduced or suspended dividends
– Increased dilution

Willis Towers Watson urges companies to address any “red flags” – such as one-time retention awards, overriding formulaic outcomes through the use of discretion, executive windfall gains, etc. – head-on, through a storytelling approach. And when it comes to ESG, the consulting firm suggests that discussing its role in executive compensation may offer these benefits:

– Preempt investor questions and demonstrate awareness of a topical issue

– Highlight existing practices or documents that may not have been widely known about to date