Incentive Compensation in the Era of Corona

Covid-19 has had an immediate impact on the financial results of businesses all over the world. Since it is happening along with the yearly incentive compensation award cycle of many organizations, it is getting difficult for leaders to address this major issue.

Certainly, navigating through these unpredictable times is challenging. So, we have got some important aspects that you can consider to combat the Corona impact better:

Annual Equity Grants

While there are a lot of certainties created by Coronavirus havoc, there are still many compensation committees preparing annual equity awards for their executives’ team.

Adjust Weighting of Bonus Plan

Each and every year bonus plans come in plenty of sizes and types. Although, there are some factors like business outcomes, sales, employee performance, health, and safety of employees. Due to these, the impact of Covid will reflect on business results which in turn, reduce bonuses for organization personnel.

The recommended solution here is to change the bonus plan weightings so as to put more focus on each and every employee’s work performance rating. This way, employees will persistently work harder to derive high profits for the organization.

Discretionary Incentive

Apart from rewarding employees with performance-based compensation, introducing a new discretionary incentive is also an excellent way to recognize employees’ efforts during these challenging times.

Even if it is not a monetary incentive, just appreciating, leaving a pat on their shoulders keeps them engaged towards achieving their team goals.

Grant Pricing

Organizations that make grants on the basis of grant date fair value of the compensation awards with a daily closing price may choose to go with a trailing average price to avoid non-typical pricing when the market is volatile.

On the other hand, publicly-traded organizations need to consider the fair market value for setting stock option exercise or stock prices cannot be figured out by a trailing average of more than 30 consecutive trading days so that options can be exempt from Section 409A of the Internal Revenue Code.

Target Long-Term Incentive Plans

It is a daunting task of establishing multiple-year work performance targets. However, business corporations have the option to put long-term performance award targets on hold until and unless the market is less eruptive while moving ahead with other important incentive elements.

Messaging for Employee Compensation

In today’s time of uncertainty, when our minds are caught up with work stress, the management of the company should decide what information to be passed on to employees about work operations, company policies, and compensation plans.

Utmost care should be taken as to how the important information to be communicated to employees while employers need to ensure that the workforce truly understands why the changes have been made.

Conclusion

Therefore, it is important to rethink the incentive compensation strategy and realign the plans accordingly. All important actions must be taken with due diligence and on the reaction of shareholders, investors, and employees. At the end of the day, all efforts should have a mutual value for both employees and the organization.