The ongoing COVID-19 pandemic has affected corporate governance from the beginning, and the disruption looks set to continue through the upcoming 2021 proxy season. Beyond the question of how to even hold shareholder meetings in a safe and effective format, the impact on both performance and returns is forcing a rethink on compensation decisions (and outcomes).
The pandemic has not changed Glass Lewis’ approach to executive pay. We start from each company’s specific circumstances, evaluating remuneration practices through the lens of pay and performance alignment, and the extent to which companies have been able to tie any program changes to this alignment going forward. It’s a pragmatic, contextual approach that applies in good times and bad.
However, the landscape for public companies and investors has shifted markedly. The many uncertainties faced by companies and their shareholders highlight the need for effective pay programs. Strong linkages between pay and performance remain crucial despite market-wide disruptions and demonstrating this alignment to shareholders is all the more important. Moreover, the scope of topics to be considered in relation to executive pay is widening, with E&S issues drawing exponentially increased focus in 2020/21, and human capital management becoming particularly relevant during a time of global economic downturn.
Further, public companies would do well to consider that the pandemic has made executive pay a more salient issue for many investors. All companies, especially those seeking special support from governments or executing significant employment cuts, should consider the reputational risk associated with poor pay decisions, particularly quantum payouts. Even those companies who have managed to perform well during this time may face additional challenges in justifying high executive payouts to their shareholders.
Given the increased level of interest in public company pay decisions and voting recommendations, we’ve supplemented our standard voting policies with illustrative guidance on how we intend to apply our existing policy approach to the specific compensation scenarios that companies in North America and EMEA are currently facing in the wake of the pandemic.
You can find these documents, along with other policy updates and thought leadership, on our COVID-19 pandemic governance resources page, or click below.