Glass Lewis
recently published its updated policy for the 2021 proxy season. As ISS did, they then waited to release a
separate document for COVID-19 impacted policies. Glass Lewis and ISS remain skeptical of in-flight changes to incentive plans or the use of positive discretion by compensation committees. That skepticism is apparent in the new policy document. Glass Lewis highlights several specific considerations for 2020/2021 and for evaluating COVID-driven compensation actions:
- Glass Lewis will evaluate compensation payout decisions in the context of cuts to dividends, employee furloughs or layoffs, and performance against key financials (even where those financials are not used as metrics by the company).
- Notably, on the stakeholder concerns, Glass Lewis is encouraging companies to publicly respond to compensation criticisms from stakeholders including government agencies and investors.
- Glass Lewis is also raising the risk of equity windfalls, “Should the potential for windfall gains on grants appear significant in terms of absolute and relative pay outcomes, we would expect a board to adjust the grant value accordingly, and/or implement adjustments to other elements of executives’ pay in order to mitigate this effect.”
- Target adjustments due to COVID should be accompanied by a reduced payout opportunity.
- The use of non-financial metrics or COVID-specific goals may be appropriate but if the achievement of those goals is used to achieve target or above-target payouts, it will be viewed negatively.
- Excluding 2020 from long-term performance awards should result in a commensurate reduction in the payout opportunity.
- Glass Lewis will view retention awards skeptically, but on a case-by-case basis.
Interestingly, Glass Lewis explicitly stated that it does not expect companies to exercise negative discretion if they have not suffered any negative impact from COVID in terms of financial and operational performance, shareholder returns, and employee welfare. We have not found that this is an expectation of proxy advisors, but may be an expectation of compensation committee members who are weighing the optics of a large payout during a pandemic, especially if employees were laid off or furloughed.
