COVID-19 impacts are likely to continue into 2021 as countries roll out the vaccines – an effort that could well take the whole year. Meanwhile, governments and companies will need to evaluate how effective the vaccines are and if any emerging strands of the virus pose additional risks.
While the onset of the virus saw companies disclose executive and board pay cuts combined with other cost saving efforts, the most recent disclosures have provided a more complete look at the specific impacts, including how disruptions impacted compensation programs.
Semler Brossy has published an excellent overview of the Russell 3000 covering disclosures through December 2020:
- 234 companies disclosed changes to either in-flight or go-forward plans.
- Consumer discretionary (26%), Industrials (16%), and Information Technology (15%) make up more than half of the companies disclosing changes.
- 32% lowered target or maximum payout opportunities.
- 29% added new metrics such as operating income, liquidity, or strategic measures in the context of the pandemic.
- 27% granted a special award to at least one NEO.
- 13% modified outstanding PSU performance goals.
- 10% changed a PSU metric on a go-forward basis while 11% changed a metric within an existing award.
In addition to statistics, the report provides multiple disclosure examples, including:
Sterling Bancorp
- Established an alternative opportunity to earn the 2020 Annual Incentive Plan payout based on two additional metrics with a reduced maximum payout opportunity. However, participants can earn cash incentive payouts based on either the original or newly established goals. If the original performance goals are met, the original payout levels are used.
- In order to retain and motivate employees, the company granted 25% of the long-term incentive award scheduled to be granted in Q1 2021 early in October 2020; award was granted in performance-vesting PSUs for senior executives and time-vesting RSUs for other recipients.
Capri Holdings (Michael Kors)
- Suspended the upcoming fiscal 2021 annual incentive plan; the compensation committee will determine whether any bonus payments are appropriate based on 2021 performance.
- The company approved the following changes for when the plan is reinstated post-fiscal 2021:
- Measure the same financial metrics for the CEO and all NEOs and eliminate the individual performance metric
- Widen the performance ranges by tying to the threshold, target, and max goals to the operating budget
- Use linear interpolation to determine payouts rather than setting hurdles
Two trackers we recommend:
- In connection with Semler Brossy, the Conference Board has established a tool for searching through COVID-19 pay disclosures and filings related to the pandemic.
- Compensation Advisory Partners has a searchable tracker of compensation and human capital actions taken in response to COVID-19.
In discussions with Subscribers following the virus’s hit in the US, it appeared that companies gradually grew more comfortable with boards exercising informed judgement on payouts rather than disclosing specific changes. Further,
policy guidance from ISS and
Glass Lewis has indicated grudging tolerance of discretionary decisions within annual programs, though changes to equity programs present higher risks of adverse vote recommendations. The Center anticipates significantly higher numbers of changes will be evident as 2021 proxies are filed, especially when counting the discretionary actions. More structural changes could also be evident on a go-forward basis.
The Center would also like to remind Subscribers of our ongoing
2021 Compensation Changes Survey. Please let us know if you have any questions on the survey and thank you for your participation!
