Agenda – Don’t Let the Coronavirus Undermine Your Pay Programs

March 30, 2020

By Marc Hodak

The global impact of the coronavirus on health is having extraordinary repercussions on business. While we cannot predict its ultimate effect on people and markets, history is clear that any major crisis upends the normal rules on executive compensation. In fact, we can predict three changes ahead:

  • While generally tolerant of good awards for strong relative performance, investors are likely to begrudge awards when experiencing unusually poor absolute performance.
  • Companies that somehow minimize the pain for their shareholders with significant layoffs and other cost-cutting measures will have difficulty justifying short-term payouts to the management that made those difficult decisions.
  • Companies that were kept afloat by government bailouts will likely see regulatory limits on executive compensation that may last long after the crisis has passed.
  • Furthermore, given that CEO pay is a favorite campaign issue during U.S. presidential elections, these concerns are sure to be magnified throughout 2020.

As a result, your compensation committee needs to prepare itself and your management teams for these predictable side effects of this otherwise unpredictable crisis. After all, no board wants their pay practices to replace front-page news about the pandemic.

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