"Executive Compensation and COVID-19" from Clermont Partners emphasizes the importance of contemporary communications/engagement with investors about executive pay decisions to avoid negative vote implications next year when today's decisions will be evaluated in hindsight in the context of pay-for-performance, compensation committee rationale, and other relevant aspects of the company's story that have been effectively disclosed.
The firm advises clear and reasonably detailed communication to investors on a current basis that includes clarity on the personnel impacted by pay actions, the anticipated timeframe of pay reductions/changes, any assumptions upon which pay is based, elements of pay impacted/not impacted, and other pay program changes. To the extent incentive metrics, targets, pay mix and/or pay structure are adjusted after-the-fact and/or discretion is exercised, the firm advises decision-making grounded in strong rationales that demonstrate alignment between the adjusted pay (e.g., metrics, targets, mix) and the company's objectives and strategy (which may be evolving as a result of the pandemic) and remain sufficiently meaningful, disciplined and rigorous to withstand the scrutiny of investors and proxy advisors. As is always the case, good documentation on a real-time basis is critical to support future proxy disclosures.
See our prior report: "Consider This Incentive Pay Approach" and "Coronavirus-Impacted Pay Plans: What to do Now?" and numerous additional resources on our Executive Pay and Compensation Committees pages. This post first appeared in the weekly Society Alert!