August 3, 2020
ISS Policy Survey: Questions on Executive Compensation
– Lynn Jokela
Over on TheCorporateCounsel.net I blogged about ISS’s “Annual Policy Survey”, which it announced late last week. Like last year, ISS is using a single survey with a limited number of questions to help streamline the process. Even though the process is streamlined, it still covers a broad range of topics, including compensation topics related to pandemic adjustments. Check out the survey to see all topics covered, but here are two compensation-specific questions:
(1) As a result of the many impacts of the COVID-19 pandemic, many decisions regarding executive compensation and performance expectations, including both short-term and long-term, will be made by boards and by shareholders during the remainder of 2020 and throughout 2021.
Which of the following most closely reflects your organization’s view of executive compensation in the wake of the pandemic? Possible responses include, in addition to a free-form answer:
– The pandemic is different from previous market downturns and many boards and compensation committees will need flexibility to make decisions regarding reasonable adjustments to performance expectations and related changes to executive compensation.
– The pandemic’s impact on the economy, employees, customers and communities and the role of government-sponsored loans and other benefits must be considered by boards, incorporated thoughtfully into compensation decisions to adjust pay and performance expectations, and should be clearly disclosed to shareholders.
– The impact of the pandemic is not substantially different from other major market downturns, such as the financial crisis of 2007-2008, and decisions regarding performance and executive pay should reflect actions taken to promote a return to profitability and financial health over a reasonable timeframe without significant short-term adjustments to performance expectations or executive compensation.
(2) With respect to short-term executive incentives, many companies have announced changes to their immediate annual incentive or bonus programs in response to the COVID-19 pandemic and the resulting general economic downturn.
Regarding short-term/annual incentive programs, which of the following best represents your organization’s view of what is a reasonable company response under most circumstances? Possible responses include, in addition to a free-form answer:
– Making mid-year changes to annual incentive metrics, performance targets and/or measurement periods to reflect the changed economic realities
– Suspending the annual incentive program and instead making one-time awards based on committee discretion
– Both the first and second response could be reasonable, depending on circumstances and the justification provided
– Companies should avoid mid-year adjustments and make payouts based on the original program design
As always, the policy survey is just the first step as ISS formulates its 2021 voting policies. In addition to the survey, ISS will gather input via regionally-based, topic-specific roundtables and conference calls. From there, interested market participants can comment on the final proposed changes to the policies.