For this week’s Minor Project 3 – Pay for Performance assignment, please note that other major references in regards to searching the requested information, please review annual CEO Compensation information in both Fortune and Forbes magazine. You will find detailed information in both of these magazines. Don’t forget to properly cite any information in your paper that you may utilize from these magazines.
For this Minor Project, you will select a company that interests you and evaluate their use of CEO goal-setting and performance measurement to help you assess their Pay for Performance structure. This information will be found in the companys annual proxy statements and other publicly-filed documents (use this link(Links to an external site.) if you need help).
In a 2-3 page research paper discuss the following:
What compensation package and pay for performance structure was given to the CEO? (.5 page)
Does the companys use of goal setting and performance measurement make strategic sense for that company? (.5 page)
Select and research 2 peer companies and discuss any differences or similarities you found in compensation or performance structure. Do the peer companies use different practices that should be adopted? (.5 to 1 page)
Based on your readings from this week what do you observe to be the major differences between this CEOs compensation package and the rest of the companys non-executive employees? (.5 to 1 page)
Remember: Dont forget that all major and minor research papers require APA formatting (which is not included in the page count). In addition, each paper should include Times New Roman and double-spaced formatting. For this paper utilize multiple sources in your research.
Human Resources Management for Public and Nonprofit Organizations: A Strategic Approach (Links to an external site.)- Pynes, Joan E. – Chapter 7, 229-231
Mahajan (2020). Managing Executive Pay and Incentives in Uncertain Times Download Managing Executive Pay and Incentives in Uncertain Times
Morrison and Barone (2020) 5 Executives Pay Issues for 2021 Download 5 Executives Pay Issues for 2021
10/1/21, 3:36 PM 5 Executive Pay Issues for 2021
5 Executive Pay Issues for 2021
Pandemic-related challenges take a toll on executive compensation
By John A. Morrison and Alexandra Orsini Barone Ogeltree Deakins
November 20, 2020
he 2021 executive compensation season will be more challenging than usual for most companies due to the nancial and economic
consequences of the COVID-19 pandemic. To meet these challenges, companies should be aware of several key issues as they
design their 2021 executive compensation programs.
1. Revisiting Clawbacks and ‘Cause’ Denitions
Expanding clawbacks and “cause” denitions to cover misconduct beyond nancial matters may help ensure that a company will be able to
recoup executive compensation in the event of reputational harm to the company or adverse publicity.
Recently, the U.S. Securities and Exchange Commission (SEC) announced (https://www.reginfo.gov/public/do/eAgendaMain?
86BB1C8D8833E7C234D63D2431A704BEFB764D7F40398DEE4CDAA0AE09B71BAFC48906485A4984A5D914BEF28D9B88936) that it
will issue revised rules to implement the clawback provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2021.
The existing proposed SEC clawback rules (https://ogletree.com/insights/faqs-on-the-secs-proposed-clawback-rule/) generally require a
public company to adopt a clawback policy to recover excess incentive compensation paid to current or former executive ocers during
the three scal years prior to the date the company is required to le a nancial restatement due to a material error, regardless of whether
the restatement is caused by an executive’s misconduct.
Although the SEC’s clawback rules apply to public companies, private companies are viewing clawback policies as good corporate
governance and are adopting similar practices. In anticipation of this new guidance, companies may want to review their clawback policies
to conrm they comply with current SEC guidance.
Companies might also consider implementing clawback policies that extend beyond nancial restatements (e.g., requiring employees to
return incentive compensation awards if grounds exist for a “for cause” termination), as well as revisiting the “cause” denitions in executive
compensation arrangements to conrm that they adequately protect the company.
2. Change in Control and Severance Agreements
Due to nancial challenges, a number of companies are facing dicult restructuring decisions. In addition, many nancial buyers and
competitors have not abandoned their strategic business plans and may initiate acquisitions of companies that are temporarily undervalued
in the COVID-19disrupted economic environment. Accordingly, companies may want to review existing change in control or severance
arrangements or implement new arrangements.
With respect to severance arrangements, it is important to consider whether they are subject to the Employee Retirement Income Security
Act (ERISA) and Internal Revenue Code Section 409A, and, depending on how post-termination health benets are provided, determine
any continuing health benets compliance issues under COBRA. Companies should consider reviewing change in control arrangements to
10/1/21, 3:36 PM 5 Executive Pay Issues for 2021
ensure leadership continues to be focused on the company’s business and is protected in the event of an unexpected or unwanted
3. Temporary Salary Reductions
In light of the ongoing COVID-19 pandemic, many companies have changed a number of their internal compensation policies or practices in
2020. For example, companies may have implemented temporary salary reductions with promises to repay forgone salaries either later in
2020 or in a future year. It may be a good time to revisit such arrangements and ensure that any repayment is completed prior to March 15,
2021 to avoid potential Code Section 409A concerns.
In addition, companies may want to be aware of any state wage and hour laws implicated by these salary reductions. Publicly traded
companies may want to conrm whether repayments are required to be disclosed under SEC rules.
Companies that implemented salary reductions may be at risk of losing key executives to competitors and should consider whether
restoring compensation (or, alternatively, oering discretionary bonuses or retention awards) would assist in eorts to retain and motivate
[SHRM members-only toolkit: Designing Executive Compensation Plans (www.shrm.org/resourcesandtools/tools-and-
4. 2020 Performance Awards
The pandemic has aected the ability of many companies to eectively set performance goals and determine payouts for long-term and
annual incentive compensation programs. In determining 2020 incentive award payments, companies that have been signicantly
impacted by the pandemic may choose to exercise compensation committee or board discretion to adjust performance metrics set earlier
In making these determinations, companies may want to conrm that incentive compensation plan documents provide the compensation
committee or board with discretion to make adjustments. Companies should also consider establishing a framework that takes into account
how discretion will be applied this year and in future years.
Publicly traded companies planning to adjust performance goals should be aware of guidance from proxy advisory rms, such as
Institutional Shareholder Services and Glass Lewis.
5. 2021 Incentive Compensation
Because the eects of the pandemic on the economy in 2021 and beyond remain unclear, it may be helpful to conrm that incentive
compensation programs explicitly provide the compensation committee and board with the discretion to adjust performance metrics and
In designing 2021 incentive compensation programs, companies may want to consider the current economic climate while keeping in mind
that incentive programs serve the important purpose of eectively motivating and retaining key executives. For instance, some companies
may change nancial performance metrics to strategic metrics (such as satisfying diversity, equality, and inclusion objectives) to address the
economic uncertainty or may delay setting performance goals until later in 2021 when there is more clarity regarding a company’s business
outlook and macroeconomic trends.
10/1/21, 3:36 PM 5 Executive Pay Issues for 2021
CONTACT US (WWW.SHRM.ORG/ABOUT-SHRM/PAGES/CONTACT-US.ASPX) | 800.283.SHRM
2021 SHRM. All Rights Reserved
SHRM provides content as a service to its readers and members. It does not oer legal advice, and cannot guarantee the accuracy or suitability of its content for a particular
Other companies may include a lower maximum payout but also lower the eligibility threshold for receiving a performance award. To
address the uncertainty of incentive compensation payouts, it might also be useful to provide retention bonus opportunities to key
executives to maintain and motivate current business leadership.
Each of these key issues is important to discuss with outside counsel and compensation consultants when making decisions about
executive compensation this year and when considering 2021 changes.
John A. Morrison (https://ogletree.com/people/john-a-morrison) is the team leader of the executive compensation practice at law rm
Ogletree Deakins, in the rm’s Atlanta and New York City oces. Alexandra Orsini Barone is an associate in the rm’s Washington, D.C.,
oce. 2020 Ogletree, Deakins, Nash, Smoak & Stewart, P.C. All rights reserved. Republished with permission.
Related SHRM Articles:
Fewer Workers Will Get Pay Raises in 2021; Bonuses Gain Ground (www.shrm.org/ResourcesAndTools/hr-
topics/compensation/Pages/fewer-workers-will-get-pay-raises-in-2021-as-bonuses-gain-ground.aspx), SHRM Online, November 2020
Executive Pay Measures Shift Toward Fairness, Social Responsibility (www.shrm.org/ResourcesAndTools/hr-
topics/compensation/pages/executive-pay-measures-shift-toward-fairness-and-social-responsibility.aspx), SHRM Online, September 2020
HR DAILY NEWSLETTER
News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.
pay and incentives
in uncertain times
COVID-19 Managing executive pay and incentives in uncertain times 2
In a matter of three months, COVID-19
has rapidly transformed from a local
virus outbreak to a global pandemic.
While the stress it has put on society
at large and healthcare systems
around the world is unprecedented,
it has also almost brought the global
economy to a grinding halt.
This slowdown is likely to be prolonged, and given the
scale and severity, businesses need to adapt quickly. In the
short term, organizations will need to adopt some cost-
containment measures, and rethink their cash flows and
working capital requirements.
An important piece of the jigsaw for organizations from
this perspective is remuneration. Often constituting one
of the largest controllable costs, organizations need to
undertake careful planning to retain, reward and motivate
employees through this crisis.
Extraordinary times demand extraordinary measures
In response to the COVID-19 crisis, several companies
in Singapore, and around the globe, are already
implementing executive pay reductions in the form of
salary freezes and voluntary pay cuts or reduction and
deferral of bonuses. These include Marriott, Lyft, BT,
Santader, Singtel, SATS, SP Group, Singapore Airlines and
Temasek Holdings, among others.
While the overall financial impact of executive pay cuts on
the companys bottom line is likely to be limited, such cuts
are critical from a leadership, perception and messaging
perspective. At a time when share prices are plunging and
as companies may need to consider headcount reductions,
executives cannot be seen as financially insulated.
From a remuneration standpoint, however, most senior
executives are paid significant proportions of their total
compensation through performance-linked variable pay
awards both cash and equity. These awards are bound to
be dramatically affected by the slowdown.
To put this in perspective, senior executives in Singapore
typically receive between 40% and 70% of their total pay in
performance-linked incentives, up to half of which could be
in long-term, equity-based vehicles. In comparison, most
other employees only receive between 10% and 20% of their
total pay in incentives usually as annual cash bonuses.
It s now become critical for organizations to effectively
navigate and manage variable pay components by trying
to balance the affordability aspects with fairness to ensure
that motivation and productivity levels do not drop
which can arguably have a major enduring impact on
COVID-19 Managing executive pay and incentives in uncertain times 3
What can boards and remuneration committees do?
In Mercers discussions with multiple boards and
management teams over the past few weeks, weve
seen that a number of alternative approaches are being
considered with respect to variable compensation for
Reducing budgets for annual executive and
employee cash incentive programs in view of
lowered performance expectations and the need to
better manage immediate cash flow and expenses.
Organizations need to be mindful to do it in
conjunction with reduced performance goals, or
management will be doubly penalized with reduced
budgets and below par performance, resulting almost
certainly in low or no payouts.
Revising targets for incentive awards for FY2020 and
beyond especially where they were set prior to the
COVID-19 outbreak taking hold. While in some sectors
in particular this is necessary, given the immediate
nature of the impact, it s still difficult to forecast the
duration and scale of such impact as the situation
continues to evolve. It s important to bear in mind
that reduced expectations have to be balanced with
reduced spending to manage affordability of budgets.
No adjustments made to either budgets or targets for
incentive awards, given the uncertainty. Boards and
remuneration committees would make discretionary
adjustments at year-end based on actual outcomes
and business response, considering talent risk, pay
competitiveness and affordability.
For equity-based, long-term incentive awards there are
multiple implications and considerations:
Equity-based compensation can serve as a useful
reward and retention tool, especially when cash
spend on salaries and incentives is being reduced.
Many start-ups are adopting this approach to
reduce cash-burn rate.
Setting long-term targets for future grants as per
business expectations, but allowing for either the
exclusion of the period for COVID-19 in performance
calculations or retesting targets midway through
the grant cycle should the impact be prolonged and
deeper than expected (a less preferred approach by
Given the share prices for most companies have
dropped around 20% to 30% on average in the
last few weeks, any grants made right now would
inevitably result in a higher number of shares being
awarded, resulting in higher dilution/depletion
of share reserves. Boards are considering either
delaying the grants to later in the year when share
prices normalize, or awarding the same number of
shares as last year, using a three-month average
share price or capping the dilution impact, in order
to normalize share award grants for FY2020.
It s also important to note that where adjustments
are being made to current year share awards,
historic awards impacted by the current outbreak
must also be adjusted appropriately. Given most
awards are based on aggregated performance
over two to four years, companies should exclude
the COVID-19 impact period from performance
calculations to maintain consistency in approach.
As the full impact and duration of COVID-19 remains
an unknown, it s difficult to set meaningful and
accurate long-term targets for performance-based
awards. One way to provide for that inaccuracy
is by expanding the range between threshold
and superior levels of performance expectations,
hedging against significant deviations and
avoiding major volatility in payouts. Another way
is to increase the usage and proportion of relative
performance measures, so managers are rewarded
for how they performed against their peers rather
than against absolute targets.
Boards are also considering replacing a proportion
of the performance-linked share awards with time-
vested restricted share awards. This hedges against
any unfair and undesirable volatility in executive
earnings, overcoming accurate long-term target-
setting limitations and providing a retention tool
to secure talent when the business emerges from
the crisis. This should inevitably be clubbed with
reduced award sizes, longer vesting periods or
higher shareholding requirements for executives to
ensure they are held accountable for a positive and
sustained post-crisis recovery.
In all of this, companies must take a long-term approach
to variable pay, ensuring that executives behaviors are
aligned with the long-term success of the company.
COVID-19 Managing executive pay and incentives in uncertain times 4
Responding from the top
At times such as these, it s important that a company s
leaders are front and center, ensuring they guide their people
through this difficult period by maintaining a sense of fairness,
commitment and optimism. To do so, they must ensure that
they are not seen as protecting self-interest over the interests of
employees, shareholders and the broader community.
Company boards across industries are responding by
reducing their own fee levels to express solidarity with senior
management and shareholders.
But in addressing the immediate challenges, it is also important
that organizations do not overlook long-term business priorities
and linkages to compensation structures, and the need to
effectively communicate these with senior management and
employees. Companies need to acknowledge that talent is a
scarce commodity, and therefore they must do enough to retain
their best, especially as they emerge from this outbreak.
It s heartening to see companies respond to the downturn in
humane ways. Some are setting up funds to address hardships
faced by their employees while several company executives are
forgoing their paychecks to contribute toward humanitarian
efforts to support communities.
This is as much a test of leadership as it is of businesses. Those who
lead from the front and row the boat to safety while ensuring
no one falls over will emerge in the best shape to thrive when
this crisis abates.
Head of Executive Remuneration, ASEAN
T: +65 8163 8451
Nishant leads the Executive
Remuneration Advisor y business for
Mercer across the ASEAN market.
He currently advises remuneration
committees and boards of some
of the leading listed and privately
owned companies across multiple
industr y sectors, investor profiles
and strategic challenges. He also
suppor ts the Singapore Institute of
Directors professional development
programs and is par t of the guest
faculty with the INSEAD MBA module
on incentives and per formance.
Copyright 2020 Mercer LLC. All rights reserved.