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Proceed with Caution When Modifying Equity-Based Performance Awards

Most equity-based performance awards for employees that will vest at the end of 2020 were granted well before the COVID-19 pandemic began (in fact, many were granted two years or more before the pandemic), and none of the performance metrics for these awards likely anticipated the havoc the pandemic has caused to the companies’ financial and stock performance. In many cases, the pandemic has rendered these equity-based performance awards worthless to employees because the performance metrics are not even remotely achievable. Yet, employees have been working harder than ever to meet the challenges of the pandemic. Some employers looking for ways to continue to reward and retain employees are eyeing modifications of existing equity-based performance awards to either lower the target and stretch performance goals or to eliminate the performance requirement completely, at least for awards vesting in 2020 (making the awards solely time-based). Before proceeding with any such modifications,… Continue Reading

Evaluating Performance Goals and Incentive Compensation in Light of COVID-19

Boards and compensation committees will be reevaluating their incentive compensation arrangements in light of the COVID-19 pandemic and the resulting market uncertainty. Both long-term and short-term incentive plans can lose motivational and retention value if the performance goals are unachievable or if they do not align with market reality. Companies that have not yet established performance goals for their 2020 equity and bonus awards should carefully consider market conditions and shareholder perception before establishing goals, focusing on motivating their executives with pay for performance that aligns with shareholders’ interests, while giving the company flexibility to navigate through uncharted territory. To the extent possible, companies should also consider delaying the issuance of incentive compensation awards until there is more stability in the business and in the financial markets. Companies that have already established goals for their 2020 awards (or that are evaluating the continued effectiveness of performance goals for prior year… Continue Reading

ISS Issues U.S. Compensation Policies FAQs for 2019

On December 14, 2018, Institutional Shareholder Services (“ISS”) issued its updated FAQs related to its U.S. Compensation Policies, effective for shareholder meetings occurring on or after February 1, 2019. There were some notable updates with respect to executive compensation and nonemployee director compensation, which are briefly discussed below. Problematic Pay Practices ISS had previously identified certain “problematic pay practices” that are likely to result in a negative say-on-pay vote recommendation. ISS has issued some notable updates: Impact of Code Section 162(m) Repeal. In light of the Code Section 162(m) repeal, ISS added, as a problematic pay practice, a shift away from performance-based compensation to discretionary or fixed compensation elements. Excess Termination Payments. ISS stated that new or materially amended agreements that provide for excess termination payments (no longer limited to change in control based termination payments) are problematic. Generally, termination payments are problematic if they exceed three times an executive’s… Continue Reading

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