Through the trauma of COVID-19, the public has generally viewed the business community’s response favorably. Employees regularly listed their company as a trusted source of news and information about the pandemic. Similarly, say-on-pay vote results from the second half of 2020 indicated that investors and proxy advisors are proving surprisingly tolerant of incentive adjustments to account for the crisis’s financial impacts.
However, the majority of companies completed their fiscal year in December and are now getting set to publish proxy statements and hold annual meetings. A recent
article in Agenda Week highlights the experiences of consultants leading up to these disclosures and what they see as the some of the larger disclosure risks.
- Be clear about compensation decisions, but also sensitive to employee experiences – above target compensation following substantial layoffs will pose risks with existing employees, wider stakeholders, and likely risk negative votes from institutional investors.
- Farient Advisors found that say-on-pay vote results for Q3 and Q4 2020 were essentially identical to the same periods in 2019.
- Consumer discretionary, energy, and industrials saw declining support in the fourth quarter – down 3.9%, 3.2%, and 4.4%, respectively.
- So far, 2021 has seen average support trend lower (84.5%) but it is too soon to tell whether this pattern will hold.
- Emphasize investments in the health and safety of employees and the costs this will incur. Farient noted that “companies are paying attention to how is this going to be viewed by the shareholder… [and] taking advantage of the ability to have a more robust disclosure in their 10-K to explain how they thought about their workforce during this time.”
The article provides some useful examples of 10-K and proxy disclosures on what steps were taken to protect employees and support them through 2020, including from Adobe and Valvoline.
Adobe described workforce changes it made in light of Covid-19, including work from home for most employees, additional safety measures for on-site employees, flexible working hours and up to 20 days of paid time off per year for employees unable to work because of the pandemic. Adobe has not yet published its 2021 proxy statement or disclosed adjustments to the compensation program.
Valvoline also provided a range of benefits including covering the cost of Covid-19 testing, telehealth, employee assistance and wellbeing plans, 401(k) enhancements, short-term incremental pay increases to on-site employees, and paid sick leave for quarantined employees. For the annual incentive plan, the company changed metrics and weightings to prioritize cash flow. The changes resulted in above-target payouts for executives, but shareholders overwhelmingly supported the proposals at 97.5% support.
