Companies have experienced massive changes in the last few years due to the pandemic, remote work/flexibility, cultural shifts, and a competitive talent market. Businesses have been forced to pivot, refocus, and advance, when possible. These seismic changes bring excitement and adrenaline, but they also bring unintended aftershocks if not addressed properly.
It’s time to reassess how long-term incentive plans line up with the new business plan.
According to Mercer Partner, Eric Larré, in this environment, companies have many questions regarding the design and administration of their long-term incentive (LTI) / equity platforms. Below he has provided some of the many considerations that will influence how you answer these questions for your organization.
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Can (or should) we change the performance objectives in our LTI awards?
Key Considerations:
- How do projected results align with the original range of performance expectations?
- What clarity do you have today regarding future events and financial projections?
- Does your eligible workforce rely on regular internal communications around performance objectives and progress toward the same?
- Are employees comfortable with how the Board has exercised judgment/discretion in the past?
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Should we delay providing normal awards that have financial performance requirements?
Key Considerations:
- Are you able to set reasonably predictable goals at this time?
- How soon can you project the ability to set reasonable goals?
- Are relative goals (in comparison to peers or an index) a reasonable substitute for internal goals?
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Should we reconsider our mix of LTI vehicles to move away from goal-based awards and toward those that reward retention and/or simply stock price gains?
Key Considerations:
- Are employees optimistic about a stock price rebound?
- What level of embedded gains and retention value is already held by the eligible population?
- What are the internal perceptions of stock price as a performance indicator?
- What have investors communicated to the company regarding the performance orientation of past awards?
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How should we calibrate the value of our awards in light of stock price declines?
Key Considerations:
- How much has the stock price declined and was the decline sudden or gradual?
- How many shares are available in your share pool?
- When did you last seek shareholder approval for more shares?
- Have you historically solved for value or number of shares in making equity awards?
By thoughtfully considering these questions, the answers will provide guidelines for how your company should proceed with your LTI plan. For additional details, read the full article at Long-term Incentives in a COVID-Impacted World or explore additional Executive rewards topics.
Let Mercer help you reassess your LTI plan
Long-term incentives are a valuable part of a total compensation package for both delivering rewards and focusing employees on desired future outcomes and objectives. To help you consider the best long-term incentive solutions for your employees check out the Mercer Benchmark Database: Long-term Incentive and Equity Report for the United States or Canada
For more information about long-term incentives contact Mercer via email or by calling 855-286-5302.