Companies are revising their plans for bonuses and other incentive compensation as the coronavirus pandemic upended financial forecasts and executives managed through a once-in-a-lifetime economic downturn.
The pandemic has had a disparate effect on companies’ balance sheets, leading to soaring profits in some industries, such as online retail and groceries, and steep losses in others, for example hospitality and travel.
Over a quarter of large U.S. businesses initially reduced executive salaries in the spring, according to Equilar Inc., a data provider. The cuts, at companies including Walt Disney Co. , General Motors Co. and United Airlines Holdings Inc., marked a reversal following several years of wage increases in the C-suite. But they were temporary, as many companies restored manager salaries in recent months.
Now, as companies are getting ready to pay out bonuses and other rewards for the past year, boards are contemplating whether it makes sense to assess executives based on goals and targets that were put in place in late 2019 and early 2020, when the outlook for their business was very different.
Boards typically use a formula set by the compensation committee when making their annual decisions on incentive pay but can adjust payouts based on individual judgment. Most incentive plans include a cash bonus payment based on annual performance, and an equity award tied to financial results over a longer time period.