Corporate boards and senior management teams face unprecedented challenges to govern and manage through the demand shock and substantial market downturn caused by the COVID-19 pandemic.
Some industries face more serious and fundamental challenges than others. After companies address the immediate business implications, they will eventually need to address a range of governance, design and administration challenges of executive and non-employee director compensation programs. In particular, the companies that benefit from the CARES Act in the U.S. will now have to take into consideration the restrictions on executive compensation in their plans.
The recent white paper released by Meridian Partners, Diligent and CGLytics COVID-19: Impact on Executive Compensation serves Compensation Committees and professionals with solutions on how to address the disruptive effects of COVID-19 across a range of compensation areas and specific issues.
The white paper provides insights to navigate the current challenges of COVID-19 including:
- Compensation Committees need to be more flexible around Corporate Governance practices including policies, program designs, proxy filings, increasing transparency and shareholder engagement than ever before.
- In an effort to shore up liquidity, options of base salary reductions have been a popular choice for many major public companies, however reductions in base salary may directly affect other pay elements and protections (e.g., bonus determination, severance calculations, retirement benefits, life and disability insurance coverage).
- Optional strategies for adjusting short- and long-term performance-based compensation; Maintaining status quo and taking a ‘wait and see’ approach until later this year (given the current uncertainty), exercising greater discretion in cash/long-term incentive outcomes, modifying existing performance goals to reflect COVID-19’s anticipated effects on financial performance, or eliminating incentive opportunity for 2020.
The white paper also delves into equity award adjustments to accommodate lower share prices and managing share usage to reduce the potential strain on share pool levels, and options to address issues of sizing equity awards including averaging share prices over terms, limiting grants and setting caps.
Other considerations for Compensation Committees include the mix of long-term incentive awards to use and how to make changes to non-employee director compensation.
Click here to download the white paper from and learn how to address the disruptive effects of COVID-19 across a range of compensation areas.