Posts from: Perla Cruz

Ensuring alignment between pay and performance is challenging enough when a business is performing well. But what about during times of an industry or economic downturn, waning company performance, a shift in strategic business focus, or a period of investment when performance expectations are not as high as in recent years? Today, institutional investors and proxy advisors are hyper-focused on pay-for-performance alignment and, by extension, the rigor of performance goals. Any indication of declining incentive goals year-over-year can bring heightened scrutiny, negative commentary, and can increase the likelihood of an “against” Say-on-Pay (SOP) vote recommendation from proxy advisors. What alternatives exist for a company facing the prospect of performance expected to be lower than the prior year? What should be considered in setting incentive plan goals and what can be expected from shareholder watchdogs who closely examine performance goals and alignment with shareholders?

A recent study by Institutional Shareholder Services of over 2,000 companies indicated that 31% of short-term incentive goals and 22% of long-term incentive goals were lowered from FY2014 to FY2015. As these findings highlight, many companies find themselves in the position of how best to address performance goals that are lower year-over-year while ensuring that shareholder interests are not neglected.

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