Coronavirus and Compensation: What Should Companies Do Now?

Coronavirus and Compensation: What Should Companies Do Now?Zoom inDownload PDF

The sudden acceleration of the Coronavirus pandemic, with substantial economic damage to many industries, has companies scrambling to respond. The priorities obviously are to protect employees’ health, first and foremost, and to manage the risk to the business. But after taking those steps, some companies will ask, “How do we appropriately motivate and reward employees now?”

For companies near the beginning of their fiscal year, their incentive goals have likely become impossible to reach already. Performance-based equity grants may be hopelessly unearnable. As for companies preparing to set goals for the upcoming fiscal year, they face enormous uncertainty, making it difficult to work with the regular incentive plan cycles. How should companies respond to this unprecedented situation?

Building on Greg Arnold and Todd Sirrasarticle from March 10, we offer some considerations for companies and Boards:

Principles

As a starting point, companies should establish clear guidelines for changes to incentive plans in light of the pandemic. These should include:

Tactical Details

Many companies are likely to want to adjust their compensation to reflect the new environment. The issues involved will vary by company, but depend most on whether they have already approved their incentive plans for the current fiscal year.

For those companies that have already approved incentive plans for the current year, the key issues include:

Companies may worry about executive turnover from rapidly falling share prices and declining pay for participants. But it seems premature to focus on this issue when every industry is being affected and most employees will be eager for stability rather than change.

Here are some alternatives for companies with plans already approved for the year:

For those companies that have not already approved incentive plans for the year, the key issues are quite different:

Here are alternatives if you have not already approved your plans for the year:

These are only initial considerations in a fast-moving environment, and will need to be judged with careful consideration of employee and shareholder experiences. We therefore urge caution when making any commitments in the near term and before taking any action. We also urge you to acknowledge to employees that the company’s plans and programs for the year have been upended and will likely need to be reconsidered as the future becomes clearer.

To keep a copy of this article by John Borneman, Blair Jones and Kathryn Neel, download the PDF.