Resource Library Resilience

With volatility and rising interest rates, will some performance-based equity awards be worth the greater cost?

When the market faces changes, many boards start considering adjustments to their long-term compensation programs - but sticking to the existing program generally creates more wealth for executives.

In these times of volatile national and global markets, caused by Covid and more recently by Russia’s invasion of Ukraine, companies have tried to delay goal setting while waiting for more certainty. However, these efforts are often futile as the year wears on and certainty continues to be in the future. 

By minimizing discretion, directors give consistent direction to management. They avoid what might be perceived as forgiving poor results and forestall potential criticism from proxy advisory firms. 

While the Covid-19 crisis has caused a significant increase in board workload, the increased responsibilities relating to environmental, social and governance (ESG) matters will continue.

In setting or adjusting executive compensation for 2020, boards employed a variety of reactions and solutions. All of these were well intended, and some look to hold up well over time. Other compensation arrangements, by contrast, will look incongruous given what we know now.

The coronavirus pandemic has profoundly shaken the retail sector. Rapid changes in consumer behavior, supply chain disturbances, and government-mandated store closures contributed to a difficult 2020.

Setting goals for incentive compensation has long been one of the compensation committee’s biggest responsibilities, made especially difficult by the Covid-19 pandemic.

Thinking longer-term is difficult when the world turns upside down. Executive pay is no exception. Our focus narrows to the items in front of us and getting past current obstacles. Eventually we focus on getting "back on track" when the existential risk passes or we get used to it, and the new "normal" gets shaped by these prior experiences.

As a resource, we outlined some of the disclosure requirements, as well as formulas for incremental expense values for four major types of performance share modifications.

A new wave of innovation, centered on artificial intelligence, big data analytics, and the internet of things, is now intensifying the pace and magnitude of disruption.

Semler Brossy drives this important incentive pay conversation forward.

While some have described the Covid-19 pandemic as a black swan event, in reality it should be treated as a “black elephant” — a cross between a black swan event and the elephant in the room.