Comp Committees Lower Performance Benchmarks to Award Bonuses

According to Veritas Executive Compensation Consultants:

Although most companies have seen their operating plans upended by the Covid-19 pandemic, compensation committees have largely declined to announce changes in the midst of the crisis to annual incentive plans for the year. Now, however, as the impact of the pandemic is coming into focus, some companies are beginning to disclose revisions to previously set annual bonus programs.
Throughout June, several companies, including Sabre and Adobe, announced alterations to annual plans such as revised metrics and lowered minimum performance thresholds. Other companies — for example, FedEx — are opting to forgo a fiscal 2021 annual incentive plan altogether, while instead offering one-time restricted stock or options grants to executives who will not be receiving bonuses.
According to Bob Barbetti, managing director at J.P. Morgan’s private bank and the global head of its executive compensation and benefits division, changes to compensation plans are largely being driven by how companies are dealing with unknowns associated with the virus. Even at companies that haven’t announced revisions, he says, comp committees are having discussions about performance plans even if they haven’t settled on specific changes yet.
“Certainly, when the performance period is coming up this year, they have to consider modifications or flexibility or relative performance measurements to do it, or an adjusted payout curve.”
In a global survey of employers fielded May 11 through May 13 and published last month, Willis Towers Watson found that 74% of companies said their executives’ annual incentive plans were operating on a “broadly similar” basis as last year. Some 12% said they had made changes to the plan, such as incorporating different metrics, moving from a formulaic to a discretionary plan or using non-annual performance periods. Meanwhile, 5% said they had suspended their plan altogether, and 9% selected “other.”
For companies eyeing metrics changes, Marshall says, “where these changes are being made, it comes back to how do you realign metrics to reflect the organization’s priorities through this time of crisis.”
For example, she says, companies that are struggling to maintain top-line growth and sales may pivot toward focusing on operational efficiency, setting up the organization to return to growth post-pandemic, or managing cash flow. They may also rely more heavily on existing non-financial metrics or introduce new ones, she adds.

 

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