Survey Shows More Than 75% of Companies May Consider Year-End Incentive Compensation Plan Adjustments Due to COVID-19

More Than Two-Thirds Considering Changes to Future Incentive Pay Plans

Compensation Advisory Partners, Equity Methods, and Board Prospects together conducted a pulse survey related to the impact of COVID-19 on executive compensation plans. The responses provided insights on how companies treated or planned to treat annual and long-term incentive compensation programs in light of the business interruptions caused by COVID-19.

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The survey, fielded between March 25th and April 1st, indicates early decisions and thinking around compensation-related actions related to COVID-19. A total of 160 companies participated, including a balanced mix of companies in terms of size and industry.

Annual Incentive Plans

Most respondents (118 of 160) had already approved their annual incentive plans for 2020 at the time of the survey. Almost 80% of the 118 companies did not consider COVID-19 when approving plans, while 14% determined that the best approach was to assess results at the end of the year. Among these companies that already approved annual incentive plans, 20% indicated that they were not planning to make a COVID-19 related adjustment at the end of the year, 10% plan to make an adjustment, and approximately 70% are still considering adjustments.

Among the companies that did not yet approve annual incentive plans (31 of 160), 65% said that they were still unsure on how COVID-19 will impact the plan. Approximately 20% said that they are planning to make changes to the plan and 15% will make a determination at the end of the year when the impact is clearer.

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Long-Term Incentive Plans

More than half of the companies (54%) had already granted their long-term incentive awards. Given that most companies grant LTI in February, over 85% did not consider COVID-19 implications when granting awards. Among these companies that already approved long-term performance plans, 3% are planning to make a partial adjustment, 26% indicated that they were not planning to make a COVID-19 related adjustment at the end of the performance period, while 70% are undecided.

Of those companies that have not yet granted long-term incentive awards, 40% were not planning to make any changes to the methodology used to determine the size of equity grants due to the stock price declines that occurred in March; 15% were implementing plan changes (such as mix changes, reduction in equity values, considering multiple tranches of awards throughout 2020, etc.); 20% of companies had cash-based awards and did not need to make changes; and 25% of companies were still considering alternative actions to take.

Future Incentive Plan Changes

More than two-thirds of companies surveyed (68%) indicated that they are considering at least one change to incentive plans due to the possible lengthy shock to the economic system. The top three changes considered included:

  • Adjusting metrics to emphasize new priorities in the business (e.g., free cash flow) – 22% of responses
  • Widening threshold, target, and stretch goal levels to smooth payouts – 17% of responses
  • Increasing the reliance on relative performance metrics – 13% of responses

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