When it comes to 2020 incentive arrangements for calendar-year-end companies, COVID-19’s arrival in the United States could not have come at a worse time. The vast majority of these incentive plans were approved by compensation committees in February, prior to many businesses being thrust into financial and public-market turmoil. When these plans were approved, it was generally business as usual for most companies, and shareholders were enjoying stock price peaks. Performance goals were based on company budgets established during the fourth quarter of 2019, back when the prospects for 2020 were much different than they are today. Within short-term incentive arrangements, performance metrics, and individual performance objectives reflected the desire to pursue business strategies that would bring the success of the past several years to new heights. Now, at the beginning of April, so much has changed in so many ways that “everything should be put on the table” concerning executive compensation design and practice.

Today, many annual incentive arrangements are “stranded” with performance goals that are no longer achievable and performance metrics that are no longer aligned with short-term objectives. We believe that providing responsible incentives during this time will be critically important for motivating and focusing employees through the crisis and uncertainty that we anticipate over the remainder of the calendar year. This post provides discussion points and ideas for addressing short-term incentive arrangements that are no longer achievable or appropriately aligned. (more…)