The Advisors' Blog

This recent article from Directors & Boards highlights anticipated compensation committee priorities for 2023. This excerpt says that one of those priorities is ensuring that incentive comp programs are designed to be recession-proof:

With the prospect of a downturn coming in 2023, compensation committees will have to ensure incentive plan goals are challenging while also ensuring those goals are achievable in a potential downturn. Approaches committees can consider include widening performance ranges around the plan, incorporating relative performance measurement into the plan and adding greater discretion, particularly for short-term incentive plans.

In order to mitigate shareholder concerns, it is better to build any adjustments into the plan design rather than make after-the-fact adjustments for the benefit of management. For example, it is better to widen the performance range at the beginning of the year than to make an adjustment at the end of the year to allow for management incentives when the management team failed to achieve the short-term incentive plan threshold level of performance.

The article also flags ensuring that executives have appropriate equity incentives, addressing new regulatory requirements and dealing with a challenging shareholder environment as other committee priorities for the coming year.

– John Jenkins