The Advisors' Blog

Yesterday, I shared this Semler Brossy alert that recommends acting now to develop a discretionary scorecard — i.e., a “reference point all parties can refer to when evaluating how well management is keeping the business moving forward” — to “serve as a basis for whether discretion might be warranted” when approving payouts under 2025 short-term incentive programs. It says time is of the essence. To get you started, it includes some suggestions — and even provides some examples.

In our work navigating the challenges posed by tariffs and related executive actions, we have come across several “buckets” of metrics that boards can mix and match according to their unique challenges and goals:

Adapt – Respond to disruption and reposition the business: Speed and impact of tariff mitigation; Pricing strategy shifts; New sourcing, manufacturing, or distribution pathways; Maintaining supply chain continuity; Cost containment without damaging future growth or quality; Workforce agility (redeployments, upskilling); Liquidity; Retention of key talent and customers; Brand and reputation protection

Grow – Position for long-term value creation: New product/service launches; Share gains in key markets; Key customer wins; Growth in recurring/high-margin revenue; Digital acceleration; Expansion into new channels, geographies, or customer segments; Strategic initiative advancement (e.g., tech investment, operational improvements)

Outperform – Achieve Relative Success Against Peers: Relative Market Share; Margin Preservation; Relative Growth; Relative Gross Margin

The memo says that committees will probably pull metrics from several of the buckets (without assigning a weight to any of them) and that progress against the scorecard should be a standing agenda item for the remainder of the year. Then, when considering the size and scope of adjustments, committees must consider these key questions:

– Who should participate in any discretionary adjustments? Boards will need to decide whether all executives participate or whether the most senior executives, with the greatest need for alignment with shareholders, warrant consideration. Most often, boards will treat executives as a team, but sometimes individual contributors with an outsized impact could be recognized. Candidates for discretion should have a meaningful effect on the facets of the business directly affected by or that are vital to overcoming present challenges.

– What are the most important criteria by which to apply discretion? . . .  It is best to selectively choose a few key metrics instead of the entire gamut, focusing on areas where executive decisions can make a tangible impact on long-term growth trajectories.

– What level of discretion is appropriate? Discretionary changes, in almost all cases, should aim to bring payouts to threshold, or somewhere between threshold and target. In most cases, relative outperformance would have to be exceptionally high to warrant moving payouts above target.

Check out the alert for example scorecards for healthcare, manufacturing and consumer products companies.

Our October “Proxy Disclosure & 22nd Annual Executive Compensation Conferences” are well-timed to share the latest and greatest thinking on 2025 incentive programs, and we have a panel — featuring Brandon Gantus of Wilson Sonsini, Ali Nardali of K&L Gates and Tara Tays of Pay Governance — devoted to discussing today’s key issues for short-term incentives. Join us in Las Vegas on October 21st & 22nd – right before NASPP’s annual conference in the same location – or virtually, if you can’t attend in person, so you don’t miss any of our great content. Sign up online or reach out to our team at info@ccrcorp.com or 1.800.737.1271.

– Meredith Ervine