Take a look at how companies are re-evaluating compensation and governance approaches in light of new changes and pressures.
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Compensation During Covid-19: What Have Companies Really Been Up To?
Dear Friend,
As the Covid-19 crisis continues on, many boards and senior executives are still contemplating how to come to terms with this dramatic turn of events.
With the nationwide shutdowns now entering their third month (though they are beginning to ease), some companies are taking a fresh look at their strategies on compensation to gain a better understanding at what others are doing. By and large, we at Farient continue to observe that most companies have not yet substantially altered their compensation strategies. So far, action has been limited to cutting base salary for CEOs in a handful of cases.
That said, board members and executives are monitoring what other companies – especially competitors within their own industries – are doing as this global crisis evolves. To that end, our newsletter this month showcases four important articles in which Farient experts (myself included) offer their insights on executive pay and governance in the wake of Covid-19.
Sincerely,
Marc Hodak
Hot Off The Press From Farient
Coronavirus Puts Top Executive Pay in the Spotlight
The Covid-19 crisis has put a spotlight on executive compensation, especially in industries where profit losses and mass layoffs have been common. However, as I explain in part of this Financial Times article, so far cuts have been limited to base pay. And, anticipating sharply reduced bonuses for next year, executives are definitely not returning the bonuses they earned earlier in the year.
CEOs Cut Millions of Jobs Amid Coronavirus Yet Keep Their Bonuses
In this Los Angeles Times article, Farient CEO Robin Ferracone is interviewed on the optics of CEO pay and why continued high compensation may be construed negatively: “There’s just the general view that we need to pay attention to all stakeholders…It can’t just be that some are getting richer and the rest are taking it on the chin.”
Related Stories About Compensation During Covid-19
Boards Face 'Real Distaste' on Pay Discretion
Performance goals set early this year may prove irrelevant as economic fortunes decline. In this Agenda article, Robin Ferracone says that while some committees have reconsidered goals and others won’t do so, most are still asking questions like ‘How are our plans doing if we make no adjustments?, ‘What does that mean for incentive plan payouts?’ and ‘What adjustments might we make to the plan within the four corners of the plan?’
According to Farient data cited in this recent Agenda article, 11% of S&P 500 companies have announced cuts to CEO compensation and 9% of those companies have cut pay for other executives. Only 6% of S&P 500 companies have announced changes to board pay. This highlights that most companies have not been proactive so far in enacting pay cuts as a response to the Covid-19 crisis.
Marc Hodak is a Partner at Farient Advisors with more than 20 years of experience as a compensation and corporate governance consultant. He has developed executive and board compensation programs for global companies, both private and public including extensive work around goal setting, performance and perverse incentives.
Farient Advisors LLC is an independent executive compensation, performance, and corporate governance consultancy. Farient provides a comprehensive array of services to boards of directors and management including: compensation program design, goal setting and performance measurement, pay and performance alignment, board of directors compensation, and shareholder communication among others. Farient has offices in Los Angeles and New York and covers clients in more than 30 countries through our partnership in the Global Governance Executive Compensation Group (GECN).
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