Coronavirus Expected to Prompt Recalibration of CEO Compensation

Fenwick corporate governance practice co-chair David Bell talked to the Wall Street Journal about how the stock market’s coronavirus-fueled decline could affect executive pay packages and prompt a recalibration of how CEO and executive compensation is set.

Bell said the potential losses highlight the flip side of stock-based compensation and the decline—which has affected trillions of dollars in market value for millions of retirees and investors—is also affecting the equity awards that increased many CEOs’ pay to new highs in recent years.

Bell told the Wall Street Journal that some companies had set their operating plans before the coronavirus arrived, and set compensation targets their CEOs and other executives are unlikely to hit in many cases.

“They are now taking a pause in that process to make a more informed decision,” Bell said. He noted that companies could make midyear changes to compensation targets in their performance criteria, or boards could use their discretion to adjust pay totals at the end of the year.

“If you haven’t set your financial performance setting as of [several weeks] ago, how do you set those? It’s a challenge especially in this pay-for-performance culture,” Bell continued.

For more information on the complex issues facing public company compensation committees as companies are adapting to the economic impact of the spread of COVID 19, please read the alert that Bell co-authored. Bell, along with several Fenwick corporate practice partners, have also created a videocast series discussing key topics technology and life sciences companies, boards, board committees and public reporting and compliance teams should focus on during the current pandemic. An upcoming episode will cover executive compensation.

The full article is available on the Wall Street Journal (subscription required).