Vanguard expects boards to exercise good judgment on executive compensation-setting and payouts that is grounded in long-term-focused pay for performance regardless of COVID-19; however, in the context of COVID-19 specifically, exercising good judgment on executive pay includes being cognizant of the overall context and public perception of the company's practices and these considerations:
- Vanguard may support plans in which variable "at risk" pay that serves to align management and shareholder interests makes up the majority of executives’ total pay and is measured with a long-term focus beyond the next quarter or year.
- Vanguard believes use of relative performance metrics, i.e., comparing relative performance metrics with those of relevant peers, is critical - particularly in a market downturn such as this.
- Vanguard doesn't believe it is appropriate for boards to adjust or create easier performance metrics such that the pay is no longer "at risk." However, it welcomes board discretion to adjust the timing or amount of payouts to better align with shareholder and stakeholder experiences.
If executive compensation payouts are adjusted, Vanguard expects increased communication and disclosure about the board's rationale and decision-making.
See our recent report: "Vanguard & State Street Concede Need for Flexibility in COVID-19 Crisis." This post first appeared in the weekly Society Alert!