14 Aug. 2020 | Comments (0)
One of the notable aspects of the corporate response to the COVID-19 pandemic is the caution with which companies generally have been approaching executive compensation. While the number of US public companies that have announced executive salary reductions has nearly doubled since May, only about 20% of the Russell 3000 have done so. Moreover, only 34% of surveyed companies have indicated that they are planning changes to their annual bonus programs, and only 30% to their equity programs.
Now, as companies prepare for their compensation committees to make year-end decisions on 2020 incentive plan payouts, and design their programs for 2021, we expect they will proceed with an extra degree of care.
With respect to 2020 payouts, compensation committees will need to decide whether and how to exercise discretion. In many cases, companies already have written guidelines to govern adjustments to determine annual bonuses and long-term incentive plan payouts. If they do not have them, this is a time to put guidelines in place that reflect principles that can endure beyond this year. In any event, compensation committees will want to: (1) closely evaluate both the magnitude and rationale for any adjustments; (2) see how proposed adjustments compare to past practice and changes made not only by their close peers but more broadly across their industry and others; and (3) explain their adjustments as clearly as possible to investors.
As for 2021, companies may wish to take their time in making significant changes to their programs. This will give companies the ability to assess the lasting impact of the pandemic on their business; revise their corporate strategies and business plans; and ensure that their executive compensation programs support their updated corporate plans, reflect broader sustainability and ESG goals, and take into account the evolving views of their investors. This means that 2021 may not be a time for immediate major shifts in executive compensation, but for deeper analysis and dialogue that could lead to fundamental changes.
I encourage you to take advantage of the resources The Conference Board offers as you address these challenges.
First, you can read our recent research reports – including Executive and Director Compensation Reductions in the COVID-19 Era and Corporate Governance Challenges in the COVID-19 Crisis: Findings from a Survey of U.S. Public Companies. And please keep your eye out for CEO and Executive Compensation Practices: 2020 Edition, which is scheduled for release in October.
Second, if you work for a US public company, you can benchmark your company’s executive compensation practices against any and as many peer groups of your choice using a powerful new online tool: the ESG Advantage Benchmarking Platform. You can learn more about this exclusive member benefit by clicking here.
Third, you can learn from your peers and outside experts by watching our webcasts, such as Investor Expectations & Engagement During the COVID-19 Crisis, Compensation & Benefits in a Post-COVID World, and Governance in a Time of Crisis: Preparing Your Board for the Challenges Ahead. And in December, we’ll discuss key findings from the report, CEO and Executive Compensation Practices: 2020 Edition.
You can also attend our upcoming executive compensation conferences, which are held online and are free to ESG Center members. The next sessions will take place on October 7 and November 12. I encourage you to register even if you can’t make it as you’ll receive the recording on-demand. To learn more and register, please visit: conference-board.org/events/execcomp
I hope you find these resources helpful.