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The Time Is Right to Assess Pay Fundamentals​

The Time Is Right to Assess Pay Fundamentals​Zoom inDownload PDF

The coronavirus pandemic has upended the key tenets of executive compensation, especially the performance-based incentives that comprise the majority of executive pay. We are seeing a sharply divided corporate world: Pay plans in “essential” industries are thriving and often maxing out, while those at “nonessential” businesses offer little, if any, annual bonus along with three years of underwater performance share units or stock options. The current environment challenges key tenets of executive compensation, specifically whether it should be market-based, influenced by peer group practices; paying for performance, with high risk for high rewards; and oriented to retaining key talent deemed essential to corporate success.

Boards don’t need to resolve these issues immediately. Debates over these tenets may be timeless, but the current crisis should and will prompt reflections on executive pay. In this NACD Directorship article, Roger Brossy and Blair Jones discuss the steps boards can take and questions directors can ask to guide that reflection.