Pour une gouvernance créatrice de valeurs®

The coronavirus (COVID-19) pandemic and the ensuing market uncertainty, as well as recently enacted legislation, have upended the compensation and benefit programs of many companies. [...] The recent market volatility means that many companies have seen a precipitous drop in their stock prices, which has in turn reduced the value of outstanding equity awards, jeopardizing the effectiveness of such awards to reward and retain employees (at least in the near-term). [...] This memorandum sets forth a number of considerations for companies that may find themselves in this position and provides some guidance as to possible approaches to be taken regarding underwater options so that companies can continue to incentivize and retain employees amid the ongoing market volatility, while also taking into account reaction from their shareholders and the proxy advisory firms.

The majority of the benefit and compensation provisions of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) provide critical relief to companies and rank and file employees in light of the COVID-19 pandemic (see our previous blog posts on the impact of the CARES Act on health and welfare plans, on the impact on retirement plans, and on executive compensation, employment, leave and payroll tax issues). In addition to supporting their general employee population, most company boards of directors (or applicable board committees) are also grappling with the unique issues relating to compensation and benefits of their executive employees at an uncertain time when such employees are critical to the company’s ability to weather the storm. The following is a summary of key executive compensation issues that boards and executives may want to consider during these trying times.

The 2019 season marked French shareholders’ second opportunity to cast retrospective binding votes on executive compensation—and for the first time, shareholder votes prevented the payment of a bonus award, as well as the implementation of a new pay policy. Many markets offer a say-on-pay vote these days, but under Sapin II legislation, which came fully into effect in 2018, French shareholders get several “says” on remuneration arrangements. 

La flambée des rachats d’action au détriment des investissements est en lien étroit avec l’octroi d’options aux patrons des entreprises cotées, expliquent Yvan Allaire et François Dauphin, respectivement président exécutif du conseil et directeur de recherche de l’Institut sur la gouvernance (IGOPP), à Montréal (Canada).

Stock grants push Pichai’s executive compensation for 2019 to more than $280 million, topping the $200 million he received in 2016. When Sundar Pichai was named the chief executive of Alphabet Inc.’s main division, Google, he received compensation of nearly $200 million, most of it in vesting stock awards. [...] Google’s parent company disclosed Friday afternoon that Pichai’s total compensation for 2019 topped $280 million thanks to stock awards tied to his promotion to chief executive of the entire company. 

The coronavirus (COVID-19) pandemic and the ensuing market uncertainty as well as recently enacted legislation, have upended the compensation and benefit programs of many companies. We are preparing a series of client memoranda regarding how companies may wish to consider their programs in this context. Focusing on incentive-based compensation might not be at the top of the priority list for many companies as they focus on company-wide crisis leadership and workforce stabilization as a whole. 

Are CEOs of public corporations rewarded for good luck but not penalized to the same extent for bad luck? Previous studies have found this to be the case, and have termed this “asymmetry in pay for luck.” Some studies find that this asymmetry in pay for luck is stronger in firms with weaker corporate governance, and take this as evidence that CEO compensation is not optimal. Given the intense scrutiny and debate on CEO compensation, it is critical for researchers to understand the extent to which contracts are set optimally.