Fireworks over Executive Compensation to Intensify
April 30, 2009
"Corporate America has a bye for the time being regarding 2009 executive compensation opportunities and incentive performance targets," observes Myrna Hellerman, senior vice president in the Chicago office of Sibson Consulting. "As 2009 outcomes become more apparent, however, there will be a lot of Monday morning quarterbacking about whether executives were paid more for less performance."
As the data from the current crop of proxies and 8Ks begin to populate analysts' and consultants' spreadsheets, a cadre of typical solutions for 2009 has emerged, she reports:
- Significant temporary reductions in executive base pay through the end of 2009.
- Annual and/or long-term incentive plan suspended for 2009.
- Reduction in annual incentive payout opportunity across the board for all participants.
- Change in performance metrics (e.g., drop growth metrics, emphasize cash flow/earnings and other strategic objectives).
- Modifications in incentive payout curves to ensure some payout is attainable.
- Introduction of shorter performance cycles (e.g., 6 months), particularly in annual incentives.
- Options exchanges.
- Suspension of 401(k) matches and corresponding SERP matches.
"Despite the fact that a good deal of thought and agony may have gone into the decisions ultimately agreed to by compensation committees for 2009, there is a tone of quick fix," Ms. Hellerman says. She relates that one compensation committee chair told her, "Well, we just went and took away everything. It was easier that way. It's what the shareholders expected, and our executives were resigned to the impact of our actions. We didn't have to worry about key talent drain in 2009. Now we need to figure out what we'll bring back and what is gone forever."
Ms. Hellerman believes that the real challenge for compensation committees is decision-making with respect to 2010. At this time of year, compensation committees generally look forward to some reprieve after the first quarter decision-making frenzy and the annual meeting. "In 2009, the typical light agenda summer meeting will be a distant memory. Committees will need to start making planful decisions about what stays and what goes in 2010's executive compensation program," Ms. Hellerman concludes.