July 8, 2021

Did COVID Disrupt Executive Pay Programs?

Executive Summary

  • 20.3% of companies (609 of 3000) in the Russell 3000 have announced a change to their executive pay program, with the majority of these changes happening to the short-term incentive plan completing in 2020
  • At the beginning of the COVID pandemic, the most common change to executive pay was a reduction in salary
  • As the COVID pandemic continued, more companies announced changes to their executives’ incentive pay
  • Changes to plans are the exception; 79.7% of companies let their plans play out as originally designed
  • Full details of plan changes can be viewed with Farient’s COVID-19 Tracker


Is COVID over? Are we finally emerging from the dark days of winter? The global COVID pandemic has been one of the greatest disrupters of lives and business since the Great Depression. As companies addressed the economic impacts of the pandemic, many had to lay off or furlough employees or reduce employee pay. Numerous companies also made changes to their executive pay program by reducing salaries and/or modifying short- or long-term incentive plans.

As the impact of COVID evolves and is communicated in annual disclosures, our team at Farient continues to analyze executive pay changes across the Russell 3000 from the onset of COVID restrictions in March 2020 to where we are today. This Farient Brief uses our proprietary COVID Tracker™, exploring the most common changes we are seeing in pay programs, and highlights some of the marquee brands that made changes.

According to Farient Partner RJ Bannister, “at the beginning of the COVID pandemic, we saw companies primarily reduce executive salaries aligned with other expense reduction/cash saving corporate actions. As the pandemic continued, this reduction expanded (in some industries) to include incentive pay. For the Russell 3000, 20.3% (609) of companies announced a change to their executives’ incentive pay, with the majority of the changes tied to the company’s short-term incentives (STI). Companies expanded their potential incentive zone by widening performance ranges to take great variability into account. The most common changes we have seen are the use of upward or downward modification to the target amount or leverage of the short-term incentive plan. However, companies with a sound compensation philosophy, set of principles and rigorous processes had the proper foundation to determine an appropriate response to COVID. ”

COVID 19- An Equal Opportunity Disrupter

These Boots Are Made for Walking

Walgreens Boots Alliance Inc. (NASDAQ:WBA) announced in its proxy, released on December 8, 2020, that it would be making a change to its executives’ short-term incentive payout. WBA split the short-term plan into two parts – the pre-COVID first six months of 2020 and final six months of fiscal 2020 – j and changed the second half to a balanced scorecard approach with goals in management of overhead costs, continued generation of free cash flow, delivery of operating profits and success in maintaining or growing sales.  

… To recognize the extraordinary efforts of our teams during fiscal 2020, the Compensation and Leadership Performance Committee reviewed the Company’s overall results [and] decided to consider an average of the pre-COVID results for the first six months of fiscal 2020 and the results of the balanced scorecard for the final six months of fiscal 2020, resulting in a payment of 84% of target…

Walgreens Boots Alliance announced the results for its say on pay vote in January 2021, with the company receiving 47.5% support from investors. In 2020, the company received 83.6% investor support for its say on pay vote.

STI Comes into Focus at Cooper Companies

Cooper Companies (NYSE:COO) announced in its proxy, released in January 2021, that the company made a discretionary adjustment to the calculated payout of its short-term incentive plan.

“In December 2020, we confirmed that our performance against the revenue and non-GAAP EPS goals of the 2020 IPP, which account for 75% of the target IPP award, fell below the threshold required for a payout. The 2020 IPP design also included a 25% weighting tied to the OCC’s discretionary evaluation of individual and company performance for the year. Following a comprehensive assessment of the performance of our employees, including our NEOs, the OCC determined to fund the 2020 IPP for all eligible participants, including our NEOs, at 75% of target.”

Cooper Companies received 91.1% support for their executive compensation in 2021, an increase from 82.0% in 2020. From January 1, 2020 to January 1, 2021, COO investors had a return of 13.1% during 2020, with the stock price increasing from $321.21 to $363.29.

Reduction in STI Opportunity Rains on Macy’s Parade

Macy’s (NYSE:M) is an example of a company that changed payout targets and leverage in its STI plan. In an 8K released on October 7, 2020, Macy’s announced that it had:

“Reduced the payout opportunity variability from a threshold of 25% of target and a maximum of 200% of target for each metric to 50% and 150% respectively and reduced overall maximum payout from 200% to 125% of target.”

Macy’s CEO received a larger bonus in 2020 vs. 2019 as the company changed its STI metrics, and the performance was much better than the previous year. In fiscal 2019, STI was weighted 40% Sales (performance was between threshold and target and resulted in a payout of 12.24%), 35% EBIT (performance was below threshold and payout was 0%), and 25% Strategic Objectives (performance was between target and outstanding and resulted in payout of 29.38%). The overall performance payout was 41.62% of the target opportunity.

For 2020, STI was based on 33.3% Digital Sales (performance resulted in payout of 49.95%), 33.3% Holiday Sales (performance resulted in payout of 37.73%) and 33.3% SG&A Savings (performance resulted in payout of 50.10%). The overall calculated incentive payout was 137.78% but was capped at 125% as a result of the announced change above.

Macy’s revenue and EPS declined from 2019 to 2020, but Macy’s had a relatively flat stock price over 2020. Macy’s received 90.7% support for its SOP vote in 2021, as compared to 93.7% in 2020.

All Aboard for Special Awards

The travel industry was particularly hard hit during the pandemic. Carnival Corporation (NYSE:CCL) saw its revenue drop 73.2% year over year. In its proxy on March 11, 2021, CCL announced special awards for a range of employees, including Named Executive Officers (NEOs).

“On August 28, 2020, the Compensation Committees approved a special equity incentive program to promote retention and to recognize employees for their efforts in the face of the COVID-19 pandemic business environment. As part of this program, each NEO received a RET grant and a SPBS grant. The Compensation Committees approved grants of a fixed number of RSUs with an aggregate value of approximately 35% of each NEOs total target direct compensation.”

CCL announced Say on Pay results in April of this year, receiving 92% support for its compensation program. In 2020, CCL received an 82.8% result for their say on pay vote. CCL is tightly controlled, with the Chairman of the Board of Directors owning 13% of the company.

It’s a Wrap

The post COVID road to recovery may be full of surprises, scrutiny and skepticism. Farient suggests considering the following as the dark days of winter fade into the brighter days of summer:

  • Tailor different pay strategies to adjust for the impacts of COVID based on the company’s specific circumstances (e.g. was the business considered essential, did the business have to shut down, etc.)
  • Consider different stakeholder experiences from employees, customers, communities and shareholders to ensure alignment between management and various stakeholder groups
  • Communicate the thought process around executive pay decisions with shareholders to fully explain decisions and rationales for any executive pay adjustments

Proxy season and pay decisions are moving quickly. For the most current information on COVID pay adjustments and view by company size and industry (at a glance), visit Farient’s proprietary COVID Tracker ™.