Farient Briefings in Full | Considerations for Executive Compensation During a Crisis
June 10, 2025
Considerations for Executive
Compensation During a Crisis
In a crisis, boards and management often confront difficult decisions with little warning and no time to consider all permutations of potential solutions. When a business disruption involves decisions on how to reward, motivate, and retain executives, those setting pay must consider the needs of the company, its shareholders, and other stakeholders. Compensating executives during a crisis must balance the retention of top talent with constraints set by stakeholders and the principles of good governance.
In this article, we look at typical crises, consider how to approach them, and focus on some of the pitfalls associated with pay decisions during a crisis. Finally, we offer some approaches to bolster crisis response.
Defining the Crisis and Understanding Context
Three categories of crises generally involve major executive compensation decisions:
1. Economic or social upheavals such as black-swan events, including global pandemics, recessions, or monetary collapse.
2. Business or industry turmoil, including a major product failure, cyberattack, industry collapse, or another significant disaster such as widespread supply chain issues.
3. Loss of key executives, whether from tragedy or bad behavior.
Knowing the kind of crisis, possible consequences, and duration is arguably the first step toward crisis mitigation and resolution. Boards need a keen understanding of the current, next-quarter, and next-year scenarios. Types of crises are limited only by the imagination, as witnessed by events in the last two decades. For example:
- Business or industry turmoil would most likely affect incentive plan outcomes. The board will need to look hard at whether incentive plans align with actual business outcomes and shareholder expectations. While it may become necessary to override existing plan design and payouts, the board and management must consider stakeholder concerns about deviating from plans and how those changes will be communicated
- While the loss of key executives may feel like a gut punch, particularly in cases involving executive wrongdoing or during business turmoil, turnover at the top rarely derails day-to-day operations in the short term. Directors often need to take a breath, consider what outside help may be required, consult with management, and rely on established succession plans to ensure that recruitment (and the successful offer it hopefully brings) reflects a methodical, rational process
- During the COVID-19 pandemic, some firms made pay decisions in the first few months of 2020 that seemed disconnected from the breadth and duration of the event. Knee-jerk pay decisions rarely lead to good outcomes; shareholders made their voices heard with low say-on-pay vote support at companies where one-time special awards were justified by management and the board as necessary for the retention of key talent. Meanwhile, there was less likelihood that talent was going anywhere due to the global nature of the pandemic and the desire of most companies to stay the course
Avoiding the Pitfalls
Understanding the type of crisis provides perspective on the approaches and tools likely to help in each situation. Risk appetite, for example, may need to be adjusted along with performance goals.
One of our business-to-consumer manufacturing clients, facing increased scrutiny from governments and customers on the environmental impacts of its products, recognized an urgent need to restructure its incentive program to motivate executives to transform the organization to better align with sustainability requirements. Key actions at the company included:
- Recognizing the urgency of the situation before it turned into a do-or-die crisis
- Tapping internal and external expertise to provide perspective on areas where management and the board needed help understanding the strategic landscape and how to tie potential business changes with effective incentive program design
- Establishing a change-management approach that involved key stakeholders to encourage buy-in across the company and with investors
Successful CEO transitions are typically quiet, orderly, and well-planned. Those that stand out immediately add value to the company and its shareholders. When a CEO is forced to resign, much is revealed about the strength of the board’s leadership development and talent pipeline. Farient’s observations about what makes for a smoother transition in these situations include:
- Once issues had been identified and investigated, management and the board act quickly and decisively to remove executives
- The company appears to have executives lined up to take over roles if only temporarily, to ensure leadership continuity
- The company does not run to the market and grab a high-profile (read: expensive) CEO. Nor did new CEOs receive windfalls because of the leadership vacuum. The compensation component of the transition was treated like a planned CEO turnover event. CEO pay was grounded in the candidate’s skills and within market norms
Many of our clients now face a real-time crisis due to questions and uncertainty about tariffs. Among the many concerns, management and boards may face disconnects between actual and expected performance in key business areas as measured by short- and long-term incentive programs. Our best advice to these clients, and any company facing challenges, includes:
- While executives may feel immediate pain from economic issues like tariffs and other economic realities, investors generally believe that when it comes to performance, “everyone benefits and suffers together.” Said differently, shareholders will expect that executive compensation programs should neither be changed dramatically nor augmented with special awards just because the business environment has turned sour
- Management and the board must understand how the pay program will evolve in response to new economic realities. Any substantial program change must consider stakeholder expectations on pay and how various scenarios could change given potential policy changes
- When it comes to changes in the executive compensation program, particularly to metrics and goal levels, the right decision today may be no decision at all. Chasing a wildly moving target such as daily tariff changes might only result in greater uncertainty, frustrated executives, and skeptical shareholders. Indeed, a well-designed and executed incentive program might provide all involved with the certainty needed in the current environment
Regardless of the crisis, any executive compensation decision should reflect the needs of the company and its shareholders. Those setting the course through turmoil must remember that compensating executives during a crisis must balance the motivation and retention of top talent with constraints set by various constituencies, including investors.
Adoption of Hybrid LTIPs on the Rise in UK
In recent years, a growing shift among companies, shareholders, and proxy advisors toward more flexible and tailored approaches to executive remuneration has occurred. One of the emerging themes coming out of this AGM season is the increased consideration and adoption of hybrid incentive plans.
A hybrid plan combines performance share awards (PSPs) and restricted share awards (RSPs) within a long-term incentive plan (LTIP). While both PSPs and RSPs can provide shareholder alignment, they each have unique purposes within a hybrid approach. RSPs provide a safety net in challenging environments – whether that relates to the lows for cyclical companies or to protect all companies in industry-specific and/or wider economic downturns. With this safety net, PSPs can be genuinely performance based and focus on rewarding outperformance.
Linked to these benefits, there are three key drivers encouraging Remuneration Committees to consider implementing hybrid plans:
- Market alignment: Hybrid plans are already the most common approach in the US, adopted by over two thirds of the S&P 500. Given the debate about the competitiveness of the UK market – and particularly for companies with significant operations in the US – companies will look to hybrids as a way to compete
- Increased uncertainty: The new norm is uncertainty. The retentive benefit of an RSP, without the need to sacrifice the performance drive and potential upside that comes with a PSP, is therefore likely to be appealing to Remuneration Committees
- Alignment with other senior employees: Hybrid incentives are already commonly adopted below board level in many companies. Where this is the case, moving executives to hybrid plans will provide alignment across LTIP participants
Despite increasing company and shareholder appetite, hybrid incentive plans continue to be relatively uncommon in the FTSE 350. As part of the broader debate around the competitiveness of the UK market against global peers, early UK adopters have generally been limited to companies with a significant market presence in the US.
To date, seventeen FTSE 350 companies have adopted a hybrid LTIP structure, of which three have been in place for over five years, six were introduced during the last two AGM seasons, and eight have been proposed as part of the 2025 AGM season.
Shareholder Reaction and AGM Voting Outcomes
ISS reports have been released for seven proposed hybrids, with six companies receiving an ‘Against’ recommendation on their Remuneration Policy. The only company to receive a ‘For’ vote, St. James’s Place, proposed a delayed adoption of the hybrid structure until 2026 and without an increase in quantum. ISS is generally recommending votes ‘Against’ where a quantum increase is being proposed alongside a hybrid structure, as was the case for all against votes recommended this year. The trend is consistent with ISS’s stance in 2024.
Seven of the eight proposed hybrids have held their 2025 AGM, with a median vote in favour of the Remuneration Policy of 78%.
Overview of UK Market Practice and key considerations for Hybrid LTIPs
Remuneration Committees are increasingly considering implementing hybrid incentive plans. Based on our experience supporting in this process, there are numerous considerations which need to be thought through as part of any review:
Rationale:
A compelling rationale is essential for the proposition of a hybrid LTIP. As hybrids remain atypical market practice in the UK, the strongest justification is significant US presence – whether through revenue contribution or a concentration of senior executives. Companies are expected to provide a rationale beyond executive benchmarking analysis against global peers. If supported by this rationale, shareholders are likely to give a hybrid structure due consideration – a factor that underpins six of the eight proposed hybrid plans.
Quantum:
Given the argument for implementing a hybrid plan is typically based on increasing competitiveness with the US market, consideration is often being given to whether quantum should be increased as part of the revised Remuneration Policy. To make an informed decision, market benchmarking against a relevant peer group – including both UK and global industry peer groups – is key to ensure that the introduction of a hybrid plan does not cause executive pay to become misaligned with the market. There is still significant sensitivity in the UK market for implementing quantum above typical UK market norms and therefore, where this is considered appropriate, the rationale presented to shareholders needs careful consideration. In addition, to further align executives’ interests with those of shareholders, companies should consider increasing the minimum shareholding requirement for executives in conjunction with a quantum increase.
In the current AGM season, seven companies proposing a hybrid structure also put forward an increase in quantum for at least one executive, with a median increase of 150% of salary. Of these, six companies propose increases greater than 100%, and three above 200%. Five of the seven have also increased the minimum shareholding requirements alongside the proposed increase in quantum.
Ratio of RSP to PSP:
Consideration will also need to be given to the split between RSPs and PSPs within the incentive plan. We expect shareholders to have a strong preference for the majority of long-term incentives to be performance based.
In hybrid incentive plans operated to date, the RSP award typically makes up 25%, though this proportion ranges from 16% to 33%. This is lower than the approach typically seen in the US, where RSPs make up between 25% and 40% of the LTIP.
Time Horizons:
The UK Corporate Governance Code states that share awards granted should be subject to a total vesting and holding period of five years or more. This has dictated the approach taken in the UK, with RSPs almost always based on a total vesting and holding period of five years. In the US, by comparison, awards are mostly released in tranches over the three-vesting period, with no post-vesting holding period. One UK-listed company that mirrored the US-style approach to executives based in the US, was met with significant pushback from shareholders.
Underpin:
Introducing underpins to the RSP element of long-term incentive awards remains majority practice and will be a shareholder expectation. The Committee will need to consider what type of underpin they want to implement for the RSP award. The key design choice is the use of quantitative vs. qualitative. Quantitative underpins offer greater transparency to shareholders by clearly outlining how the underpin will be tested against pre-determined performance criteria, while qualitative underpins provide more flexibility, setting out areas the Committee will consider when reviewing the RSP pay-out, without clearly defining what these measures are.
Under both designs, the underpin provides the Committee with the ability to exercise discretion and adjust the vesting outturn based on the assessment of the underpin. The most common approach adopted to date in the UK is for qualitative underpins to apply. In the US, underpins are rarely used, if ever.
Shareholder Consultation:
When considering the implementation of a hybrid LTIP, shareholder consultation is essential. As the implementation of hybrids remains unusual in the UK market, it is important that shareholders are consulted early in the process on the proposed details of the hybrid LTIP, to allow for the Committee to fully consider their feedback in determining the final proposal
As noted above, compelling rationale for the proposed approach will be essential. Without this, it is unlikely that shareholders will support the proposals.
Future Outlook
Farient continues to expect that Committees will increasingly look to hybrids as a potential incentive structure given their benefits. As the most compelling rationale to date has been the ability to compete with US competitors, we expect many early adopters to have significant presence in the US and/or compete for talent in the US market.
We expect ISS to review its policy for the 2026 AGM season in relation to voting against hybrid proposals that include an increase in quantum. To increase the likelihood of gaining support, our view is that companies will need to provide compelling rationale for why a hybrid is appropriate and, independently, why an increase in quantum is appropriate. Nonetheless, we expect hybrid plans to become the new gold standard incentive schemes eventually adopted by most of the UK market.
Farient Advisors will continue to track and report on AGM voting outcomes, and any emerging trends. Hybrid plans are expected to be on this year’s agendas for many Remuneration Committees. With industry-leading experts in both the UK and US., and with experience implementing hybrid plans in the UK market, Farient Advisors is well positioned to support companies in considering the adoption of hybrid LTIPs.
Should you wish to discuss our thoughts on hybrid LTIPs or your specific circumstances, please contact either myself (stephen.cahill@farient.com) or David Cohen (david.cohen@farient.com).
In the News
How Much Should Elon Musk Get Paid?—The Wall Street Journal
A newly published Wall Street Journal story explores the options open to the Tesla board as it considers how the world’s richest man should be compensated. Farient Advisors Founder and CEO Robin A. Ferracone offers a clear perspective:
“You’re paying the person to do an executive job, and you have to separate that from what kind of equity stake they have. If he wants a bigger stake in the company, go buy it.”
Ferracone also highlights investor-friendly alternatives such as matching share purchases through a co-investment structure, while reinforcing that compensation committees more broadly should apply the same rigorous process to awarding founder-CEOs as they do for any other executive.
Where to Find Us
NACD Leading Minds of Governance
Boston, MA
September 17, 2025
Directors & Boards
Compensation and Talent
Virtual
September 25, 2025
NACD Directors Summit 2025
National Harbor, Maryland
October 12-15, 2025
For more information, please email us at info@farient.com.
Understanding Climate Incentives
Exclusive: Around the globe, the heat is on to combat climate change while some political regimes denounce the veracity between greenhouse gas emissions and a warming planet. Nevertheless, large corporations are reporting Scope 1, Scope 2, and, increasingly, Scope 3 greenhouse gas emissions and linking reductions to executive compensation, according to Farient Advisors’ newly published 2025 Global Trends in Stakeholder Incentives: Climate Strategies and Incentives for Corporate Sustainability.
Learn more about how the world’s largest companies are setting and achieving climate goals by linking climate measures to executive incentives by sector and geography.
About Farient Advisors
Farient Advisors LLC is an independent premier executive compensation, performance, and corporate governance consultancy. Farient provides a full array of services, linking business strategy to compensation through a tailored, analytically rigorous, and collaborative approach. Farient has locations in Los Angeles, New York, and London and works with clients globally through its partnership in the Global Governance and Executive Compensation (GECN) Group. Farient is a certified diverse company and is recognized by the Women’s Business Enterprise National Council.
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