Compensation Matters: At Your Discretion

The coronavirus pandemic gave the global economy an unprecedented shock that has raised the stakes for one of the compensation committee’s most challenging tasks — determining when and how to apply discretion to adjust executives’ incentive pay for circumstances outside their control.

The question of when to make discretionary adjustments is always a tricky one. Although the impacts of COVID-19 have been sudden, significant and unexpected, it is important to remember that 2020 was already shaping up as a particularly challenging year for incentive goal-setting. The U.S. economy was marching toward its 11th year of economic expansion and the potential for tariff wars, Brexit and an upcoming U.S. election all added to a heightened level of uncertainty. The pandemic has simply accelerated the urgency to establish a framework for what compensation committees will and won’t do to apply discretion. Without forethought — and forewarning to executives — decisions on compensation adjustments can create unintended consequences. The heightened emphasis on corporate social responsibility in today’s environment and focus on how a company’s actions affect its broader stakeholders mean that now more than ever, committees need a thoughtful process for considering discretionary adjustments.

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About the Author(s)

Greg Arnold

Greg Arnold is a managing director of Semler Brossy.


Mark Emanuel

Mark Emanuel is a managing director of Semler Brossy.


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