We’ve blogged a lot about pay adjustments that may be necessary due to unforeseen challenges that the pandemic has presented.
But for some companies, the pandemic has meant that business is booming. A Pay Governance memo summarizes pay actions that you might want to take if you’re at either end of the spectrum — noting that even companies that are doing relatively well right now still need to be sensitive to the overall environment that we’re all facing.
Here’s what it says to consider if your company’s performance has been better than expected this year, and you’re tracking to above-target payouts for annual incentives:
Discuss formulaic payouts, based on:
- Reviewing the impact of the pandemic on revenues/profits versus future/sustainable levels
- Considering the team’s response to the pandemic to safely meet increased customer demands while managing supply chain and other operational challenges
- Evaluating if negative discretion is appropriate considering broader context (e.g., pay less than maximum to avoid perceptions of windfalls and demonstrate empathy)
And for long-term incentives that were granted at prices well below the current value, or that are tracking for above-target payouts due to unique 2020 performance, it suggests:
- Reviewing formulaic payouts to ensure payouts are appropriate considering the broader economic and social context
- Evaluating if the estimated payouts from outstanding awards provide sufficient recognition for the performance delivered, which also may be considered in developing next year’s long-term incentive grants
In addition, the memo suggests reviewing NEO pay — including potential realizable pay and a mock-up of next year’s Summary Compensation Table — and the history of incentive payouts compared to TSR over 3, 5 and 10-year periods. While you’re at it, now’s also the time to start assessing whether 2020 events should affect plan design for 2021.
-Liz Dunshee, CompensationStandards.com August 26, 2020
