Companies are continuing to disclose changes to executive pay plans based on COVID, with 50% of 2020 calendar-year filers in the S&P 1500 now disclosing such changes compared to 42% of September 2020 FYE companies, according to a
new CAP survey.
The study, which tracked 300 S&P 1500 calendar-year companies by index (large, mid and small-cap), found significant differences in recent disclosures from those filed last year by companies with June 2020 FYE dates, who were able to simply exclude one quarter of COVID from their annual and long-term calculations. December FYE companies, faced with two or three quarters of COVID impact, were much more likely to modify incentive plans or payouts instead. Highlights of the study included:
- Changes to incentive plans for December 2020 FYE companies took the following shape:
- Changes to annual plan only: 60%
- Changes to long-term plan only: 9%
- Changes to both annual and long-term plans: 31%
- Among the S&P 500, the most common annual plan changes were to metrics (36%), resetting goals (29%), revised payout scales (27%), adjusting results to exclude the impact of COVID (27%), and using discretion to adjust final payout (24%).
- Commonly added metrics included operating income, liquidity and strategic pandemic-related measures.
- About 80% of companies that adjusted payout scales decreased maximum payouts, often down to 100% of target.
- Among companies exercising discretion, about 75% used positive discretion and most increased payouts to 50%-100% of target. The 25% who used negative discretion did so to bring payouts to be equal to or less than target.
- For long-term changes, the most common were adjusting the performance period (28%), changing metrics, LTI vehicles or payout scales (each 24%), and resetting goals (20%). About 16% exercised discretion on the final payout.
- Most companies changing LTI vehicles replaced performance shares with time-based equity.
- The most common metric change was to add or increase the weighting of relative TSR.
- Companies continue to contemplate changes for 2021 plans, including a shift toward non-financial metrics or relative TSR, flatter or wider payout curves to mitigate volatility, shorter performance periods and delayed goal-setting, and more emphasis on time-based equity.
