www.hrreporter.com 21
HEALTHY MIX REQUIRED
FOR POST-PANDEMIC
INCENTIVE COMPENSATION
a challenging pandemic year,
employers and employees
are likely looking forward to turning
the page on 2020. However, this past
year's impact on businesses and markets
will probably continue well into 2021,
especially as it relates to decisions
surrounding incentive compensation.
So, what can employers expect?
Here are some key considerations for
employers looking to create or review
incentive compensation plans.
Incentive compensation plays a crucial
role in communicating a company's
priorities and showing management
accountability to investors and other
stakeholders. After a difficult pandemic
year, boards are expected to materially
revise executive short-term incentive
plan performance metrics applicable to
upcoming financial years to make these
better adapted to new realities.
While more difficult to adjust mid-
stream, long-term incentive plans
typically provide directors with the power
to exercise their discretion and waive
or revise certain metrics for unvested
grants. Undoubtedly, such discretion
will continue to be essential to boards in
times of crisis. Shareholders will expect
it to be exercised reasonably and with
proper justification.
When designing or reviewing their
compensation mix in light of the new
trends, organizations should keep in mind
the six "Ps" of executive remuneration:
Policy infrastructure: Use a mix of
compensation tools that support your
strategy, implement minimum equity
holding requirements for executives and
double-trigger provisions for change-of-
control payouts and clawback policies.
Performance-based awards: Align
total compensation with performance.
Peer-adjusted package: Take into
account horizontal benchmarking.
Proportionate compensation: Do
not lose sight of vertical benchmarking
and internal pay equity perceptions,
meaning CEO compensation should not
be disproportionate compared to direct
reports and the average compensation
of employees.
Problematic awards: Avoid paying
overly generous severance packages and
special awards, especially if recurrent;
make sure to justify any special
payment.
Pandemic-adapted practices: You
will be judged by how you adapted to
the pandemic.
Lastly, given the unique nature of
the pandemic and its impact on the
economy, boards applying current plans
and approving incentive compensation
payouts for 2021 may have a challenging
task ahead.
Indeed, they will likely be called to
balance certain financial realities and
restraints caused by a year of crisis in
appropriately (financially) recognizing
the efforts of employees who have
worked hard to help counter the effects
of the pandemic on their organizations.
Retaining key personnel and main-
taining a good level of motivation to
carry on these efforts continue to be
top of mind for many. In short, 2021
won't be without its own interesting
challenges.
CHRR
AFTER
PETRA VRTKOVA
Associate
Norton Rose Fulbright in Montreal
GENEVIEVE LAY
Lawyer
Norton Rose Fulbright in Montreal
