The Advisors' Blog

Growing up in the shoe biz, I can empathize with retailers right now. Ongoing disruptions to business models & the economy have created long-term uncertainty for growth – which casts doubt on whether typical incentive plan metrics & goals are still workable. What’s a compensation committee to do? A recent Semler Brossy blog shares recommendations for goal-setting in light of these issues. Here are the key takeaways:

– 2023 goal setting uncertainty. Particularly in the retail industry, recent economic and market uncertainty are expected to impact fiscal year 2022 incentive plan outcomes and create goal setting challenges in 2023 and beyond.

– Approaches to address risks. Establish wider performance and/or payout curves, introduce strategic or operational metrics, separate or shorten performance periods, and consider using more relative metrics.

– Ensure future durability. In contrast with the temporary actions taken to immediately respond to the pandemic, retailers should consider the long-term durability of any incentive plan changes in response to a more prolonged period of uncertainty.

On that last point, the pandemic showed that shareholders and proxy advisors don’t look fondly upon reactionary adjustments that end up creating perceived windfalls for executives. With last month’s consumer spending data being surprisingly favorable for retailers, durability is key – don’t overcorrect.

– Liz Dunshee