A couple of weeks ago, I wrote about implications and approaches to dealing with the effect of the COVID-19 pandemic on executive compensation plans. As companies and boards try to get their arms around this unprecedented situation, Semler Brossy has issued a memo discussing a range of alternatives for dealing with incentive compensation.
The memo provides possible alternatives for companies where an incentive plan has already been approved and separate alternatives to consider if a plan hasn’t yet been approved. The alternatives are further broken down by annual and long-term incentives. Here’s some of what the memo says about annual incentive plans already approved:
– Let the plan play out as is, and communicate your intent to evaluate performance and exercise discretion at year-end – establish a framework for this use of discretion, with factors such as relative performance and historical performance.
– Make no immediate changes, but communicate your intent to reset goals once you have clarity into the near future – presuming there is sufficient stability by mid-year.
– Establish an additional plan with stretch but realistic targets – this wouldn’t replace the existing short-term incentive opportunity but would be used to motivate executives to work toward hitting important strategic or financial goals – then make sure to net payouts earned against payouts from the original plan.
-Lynn Jokela, CompensationStandards.com March 30, 2020
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