Our Take: COVID-19 Has Amplified Existing Trends, Which Show No Sign of Slowing Down in the Near Future
The degree to which a particular industry or issuer has been affected by the current health and economic crises can and should play a role in the way boards and compensation committees make compensation-related decisions. However, more broadly, regardless of industry or degree of impact from COVID-19, issuers should expect to continue to face increased scrutiny relating to pay decisions in the future. In these uncertain times and in response to still further, as yet unforeseeable, future crises, boards and compensation committees will need to consider and balance:
– ESG factors and how these should be defined with reference to the issuer, including “social” and “sustainability” factors; and – the potential for criticism from key stakeholders and for reputational harm. Most important, and as noted by Glass Lewis in a document outlining its approach to governance in the context of COVID-19, companies should avoid putting in place any pay practices that make – or even keep – executives whole at the expense of shareholders and employees. 134 Doing so is likely to lead to less support for say-on-pay resolutions and director elections and, potentially, to greater shareholder activism. Finally, in any decision-making relating to executive compensation, directors should prioritize dialogue, transparency and clarity, both in the issuer’s public disclosure and in communications with the issuer’s management and key stakeholders. And all decisions, importantly, should be made within the context of an issuer’s broader long-term strategy and objectives, including its human capital and resources priorities.
– executive retention and morale; – disclosure requirements and best practices;
– the views of major investors and proxy advisers, as well as other key stakeholders (including government and regulatory authorities, employees, creditors and pensioners);
96
Governance Insights 2020
Powered by FlippingBook