The Advisors' Blog

– Lynn Jokela

We’ve blogged before about annual incentive plans – recognizing some companies are considering whether to exercise discretion at year-end when determining bonus payouts.  A recent Pearl Meyer blog discusses use of discretion and other approaches for determining 2020 bonuses, noting that no single approach fits all companies.   Using discretion requires careful proxy statement drafting as companies will need to clearly disclose the rationale for the ultimate payment.  The blog suggests some companies might want to consider deferring 2020 bonuses into 2021.  Here’s an excerpt:

Under this approach, all or part of the 2020 bonus opportunity would be deferred into 2021 based on goals established for the 2021 fiscal year. In other words, rather than making a plan modification to rationalize a bonus for 2020 performance, increase the 2021 bonus opportunity to give management a chance to earn all or a portion of the “lost” 2020 bonus. One appeal of this approach is that the external environment needed to set more realistic goals likely will exist. Another is that, unlike committee discretion, it maintains a direct tie-in between payout and performance versus preset, objective goals.