Semler Brossy issued a recent report reviewing incentive design changes in response to the COVID-19 pandemic, which so far, have been less frequent than reported CEO salary reductions. Semler Brossy reviewed filings from 36 Russell 1000 companies disclosing changes between June 1 and September 10 and observed that almost 1/2 of the announced changes were to annual incentive plans and about 1/3 were for changes to both annual and long-term incentive plans. Here are the most common changes these companies announced for annual incentive plans:
– 69% of the announced changes added new metrics – commonly added metrics have been cash flow, EBITDA, and strategic/ operational health measures
– 41% reduced target or maximum payout opportunities – both for the in-flight plan and the go-forward plan
– 34% modified the performance period – typically to measure partial year performance
– 28% added committee discretion to determine payouts – the report notes this approach may be more prevalent in practice given the qualitative measurement of certain additional metrics
The report also includes findings from review of announced changes to long-term incentive plans — which were less common than changes to annual incentive plans. For specific actions some companies took, the report provides case studies detailing more extensive actions taken by six companies, and Mike Melbinger blogged a while back with a nifty chart showing disclosures from companies that made changes to their short- and long-term incentive plan performance targets or metrics.
-Lynn Jokela, CompensationStandards.com September 29, 2020
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