Navigating the Pandemic: Risk Oversight Considerations from Fortune 500 Committee Chairs

As companies are still confronting the immediate challenges resulting from the crisis precipitated by COVID-19, boards are beginning to turn their attention to the potential aftershocks of the pandemic to help shape their organizations’ post-crisis strategy amid great uncertainty and continued turbulence. Second- and third-degree risks, such as the credit risks of a customer’s customers or a supplier’s suppliers, are only beginning to emerge, and companies have little time to adapt to this new wave of challenges. At the same time, boards are considering the longer-term implications and opportunities that may result from the pandemic.

NACD, along with PwC and Sidley Austin, recently convened 50 Fortune 500 risk and audit committee chairs for a virtual meeting of the NACD Risk Oversight Advisory Council. With representation across industries, many unique risks were surfaced, but common themes arose throughout the dialogue. And while the threat to employee health and safety and corporate performance remains acute, boards have begun to turn their attention to what comes next.

Deepen Your Understanding of New Ecosystem Risks

One delegate pointed out that now, more than ever, it is important to know and understand your company’s entire ecosystem. When considering supply chains, employees, communities, and customers, boards should ensure that management is thinking not only about direct risks, but also about risks that are two or three degrees removed.

Supply-chain risk received particular focus in the discussion. For example, while a company may have set up a payment structure with a customer, what happens if that customer’s customers stop paying? Is your customer’s risk-management program effective? Is the company prepared for taking on that risk?

While the pandemic crisis remains the major focus of directors, cyber risk has emerged as a prevalent secondary and related risk. Attendees noted that boards must engage with management to understand how the threat landscape has changed, particularly in the unexpected remote work environment that traditional security controls were not designed to protect. Additionally, with increased phishing attempts, schemes around transferring funds, and other risks that arise in the remote work environment, constantly monitoring the threat landscape is key to ensuring that companies can quickly prevent, detect, and mitigate new cyber risks. Management should discuss with the board when it is necessary to escalate cyber-risk threats to the board, as the nature of a remote working environment may require more frequent and active engagement. Similarly, the board should reaffirm which board committee has primary ownership of cyber-risk oversight or if it will be a full-board responsibility, given the heightened nature of the risk today.

It’s no Surprise, but Robust Risk Governance Really Matters

The board should be reevaluating its governance posture, particularly around takeover defenses. The decline in the stock price of many companies has increased the risk of hedge fund activism and unsolicited takeovers. Investors and proxy advisors have indicated that in the current environment, they will overlook the adoption of protective measures like poison pills. Boards should consider whether to adopt such measures and, if so, which measures might be appropriate given the current market volatility.

Strong oversight of the company’s enterprise risk management (ERM) function had proven to be key in helping mitigate risk prior to the coronavirus crisis. One director mentioned that benchmarking their current risks against those of their industry peers ensured that the company remained on top of emerging risks. Another director mentioned that the 2008 financial crisis forced the company to reimagine their ERM program along three main principles:

Focus on a finite set of enterprise risks. Broader risks should be managed by individual business functions.Ensure that enterprise risk is integrated into the business process. Risk shouldn’t be the last consideration, but rather a lens for all business processes.Be outcome based. Have management reflect on whether they are simply reporting risk or reporting risks and mitigation strategies.Boards should ensure that the company has a strong ERM process, and management should have an effective reporting structure in place—one that will bring key emerging and possibly disruptive risks to the board’s attention and facilitate responsive action when appropriate.

At the end of the day, it is during calamities such as the COVID-19 pandemic that the board’s role can come into stark focus. How the board responds can make a significant difference for the company. Tom Kim, a partner with Sidley Austin, said that “The board should ask, ‘Has management thought deeply enough about how they are responding to COVID-19?’ And then the board should itself ask that same question and go through that same exercise. The resulting discussions will inform corporate disclosures and conversations with investors. And those conversations and disclosures will be more effective because of it.”

Address Today’s Risks and Focus on Tomorrow’s Opportunities

As management teams continue to confront the most pressing and immediate impacts of the crisis, including employee health and safety, financial health, and operational risks, boards have an opportunity to start shaping the post-crisis strategy by assessing longer-term opportunities and risks in a much-changed business landscape. Delegates discussed the increased use of scenario and contingency planning to map different paths for the company.

Several delegates spoke positively of the opportunities that exist for those companies able to make the necessary strategic and structural changes. For example, some industries will see regulatory changes that will shape how their businesses function in the years to come. Businesses can have a positive impact on those developments if they work carefully with regulators. Other industries may see opportunities to reorient their capital expenditures to develop certain business lines over others given emerging consumer behaviors.

Delegates discussed the need to consider the potential business implications of supply-chain diversification, US-China decoupling, the repatriation of operations to the United States, more digital and remote work, increased industry concentration, and an amplified role of government in the economy and as a customer. These are all possible trends that could create a starkly different operating reality; boards should begin to anticipate and engage management on these trends. One delegate thoughtfully noted, “As a board, the three things to think about are how do we emerge from this stronger than before, where are there inorganic growth opportunities, and what changes do we need to make to our strategy?”

As companies move to the next phase of the crisis, in what one delegate referred to as the “bridge to recovery,” boards are turning toward taking control of the situation and their own fates. Government policy will significantly influence how and when the economy starts up again. As we enter the next phase of this prolonged crisis, companies can effectively partner with the public sector and share their expertise in a way that creates opportunity and reduces risks for the entire company ecosystem. As one delegate said in closing remarks, “It is times like these when I really love the capitalist system that we are all a part of. There are hundreds of companies right now working toward solutions to this health crisis that will ultimately serve our communities and save lives. And those companies know that if they do it best, they will succeed, too. We have the best minds working on these issues, because the economic system we have encourages and supports them.”

Note: The meeting was held using a modified version of the Chatham House Rule, under which participants’ quotes are not attributed to individuals or their organizations, with the exception of cohosts.

COVID-19. Uncertainty. Fear. Recession. Fiduciary Duties.It’s essential that directors know what to focus on and when.

Become an NACD member today.

NACD: Tools and resources to help guide you in unpredictable times.

A Director’s Perspective on COVID-19: An Interview with Robert C. Pozen

The COVID-19 pandemic has raised a number of essential, and time-sensitive, questions for companies and their directors. Robert C. Pozen, a senior lecturer at the MIT Sloan School of Management and a nonresident senior fellow at the Brookings Institution, spoke recently with Oliver Wyman partner Chaitra Chandrasekhar about COVID-19 and the board’s role throughout this crisis.

Pozen, the former executive chair of MFS Investment Management and the former president of Fidelity Investments, was also a director of BCE (the parent company of Bell Canada) and of Medtronic, where he was chair of the finance committee. He is currently on the boards of Nielsen Holdings and IFC Asset Management Co. (a subsidiary of the World Bank Group), and he was previously on the boards of several nonprofits; he is also a senior advisor to Oliver Wyman. At Oliver Wyman, Chandrasekhar advises senior decision-makers across the private and public sectors on questions related to strategy, digital transformation, and data-driven innovation. She served as a 2019 NACD Blue Ribbon Commission commissioner.

Some insights from their Zoom conversation in mid-April are below:

Chaitra Chandrasekhar: How does a crisis change the role of the board?

Robert C. Pozen: The board needs to be more proactive, but it can’t be micromanaging. That’s the overarching challenge. The solution is for the board to be proactive in asking management to present information to them quicker and in more depth than before. As a result, a board that [usually] meets four to six times a year is going to meet a lot more often. One board I was on during a crisis met 19 times in a year. You can meet via Zoom or on conference calls.

Chandrasekhar: What do you mean by “proactive”?

Pozen: I see three steps in dealing with a crisis. The first is the board needs to understand the nature of the crisis and how it impacts the company. The directors need to be particularly sensitive to downside risk in these crises: compliance fines, projected cash flows, reduced capital expenditures. They need to know what the impact is on the annual operating plan.

The second step—which may be part of step one or at least follow quickly—is to ask management to present an action plan to deal with the crisis. This is in part a revision to the annual operating plan. Management writes the plan, and the board approves or modifies it. It should address the financial side. Are we going to, for instance, reduce or eliminate stock repurchases? Are we going to go to the banks and ask for covenant relief, or can we ask to draw down our credit lines? Are we going to cancel planned transactions or capital expenditures? Do we need to start new projects to deal with the crisis?

The third part is ongoing monitoring. The first two steps happen fast; the third is ongoing—starting after the immediate response to the crisis and going on for a year or more. From a process point of view, the board allocates responsibility to different committees. The compensation committee needs to focus on whether and how to revise [compensation] plans if the stock price drops radically. The governance committee may want to focus on succession issues. The audit committee needs to become proactive about financial statements and reports, like 10-Ks.

Chandrasekhar: How fine is the line between oversight and micromanaging?

Pozen: It’s a very fine line. One danger is that you just get in management’s way, making it more difficult for them to do their job. Another is that management won’t feel accountable if they feel like they haven’t made all these decisions, if they feel the board has second-guessed them.

Consistency is important. If the board says, “We really want to see your revised operating plan and what you’re proposing on capital allocation,” then management still has responsibility and the board can choose to modify the strategy. But once everyone agrees on the revised operating plan and strategy, the board has to let management carry that out. The board can’t say, for instance, “We decided we were going to cut out all share repurchases,” and then a month later say, “We want to reinstate them all.”

Chandrasekhar: Is there a difference between crises that impact a single company versus a broader group? Are there lessons from other crises, like the 2008 financial crisis, that apply to the COVID-19 crisis?

Pozen: Most crises affect individual companies or industries, or regions. Although the 2008 financial crisis was broad, it did not extend to all countries and all industries. And the fact that it was caused by the financial industry means there was a much narrower focus. It was more easily understood.

This COVID-19 crisis is different in that it affects every country in the world. And the level of uncertainty is much higher because there are so many things we don’t know. A board faced with such uncertainty needs to ask management for a number of scenarios, from best case to worst case to something in between. And ask how the company will respond to these different scenarios.

Chandrasekhar: How and when should broader strategic questions be considered? “Is our five-year plan still on track or does it need to be revised?” Or, “Are there new opportunities surfacing that may not have existed before the crisis?”

Pozen: This is part of the third phase, the monitoring. In a broad crisis like this, there will be important implications for your three-year, five-year, or whatever plan. It’s up to the directors to say, “Now that we’re somewhat stabilized after the crisis has ebbed, let’s think now about the strategic implications.”

There may be opportunities to buy companies that have been beaten down by the crisis. Maybe we need to consider being acquired because we can’t remain viable in this situation. Or we’ve always thought of ourselves as having a physical presence, but now maybe we need to really shift to being 90 percent online up from 30 percent. Maybe we’ve learned something important about technological innovation. Maybe we need to change our supply lines because we’re not going to be able to depend on certain countries or companies.

COVID-19. Uncertainty. Fear. Recession. Fiduciary Duties.It’s essential that directors know what to focus on and when.

Become an NACD member today.

NACD: Tools and resources to help guide you in unpredictable times.

Preparing for Board Compensation in Times of Distress

When companies prepare for a potential restructuring, making adjustments to compensation programs for executives and key employees is common practice. However, adjustments to nonemployee director compensation are often overlooked.

Director compensation is normally comprised of two elements: cash retainers (including an annual board retainer and committee retainers) and an equity retainer (typically restricted stock that vests if a director remains on the board for one to three years from grant). At the time of a potential restructuring, however, previous equity awards issued by a company typically have little to no value, and the company may not have enough available equity to properly compensate its board members. 

According to the 2018–2019 NACD Public Company Governance Survey, the average public company director’s time commitment is roughly 245 hours each year—and the workload significantly increases both in preparation for and during a restructuring. This is particularly true in the early stages when many important decisions require the board’s timely attention. The increased time commitment is one factor that should be considered when evaluating board compensation practices and levels during a restructuring.

Moreover, in a bankruptcy setting, board members are also likely working themselves out of a job. Based on our analysis of bankruptcy filings and companies emerging from bankruptcy, 98 percent of board members, on average, turn over after a company emerges from bankruptcy either with new owners or after a company is sold. These factors highlight the need to appropriately compensate essential board members in order to maximize the value of a company over the course of the restructuring process.

Prior to making any changes, boards should evaluate market levels of pay by benchmarking compensation at similar companies. Appropriate compensation is essential to maintaining directors’ focus during a time of distress and increased workload. Benchmarking director compensation also provides assurance to companies that their board members are being compensated fairly and within current market standards, which may reduce a company’s risk associated with utilizing out-of-market pay practices. Using that information as a baseline, boards will usually make the following changes to director compensation when the call of duty demands increased time and commitment.

Conversion to Cash Compensation

As a company approaches a restructuring event, equity compensation generally does not provide an appropriate incentive due to its diminished value. During this time, boards frequently conduct a market analysis to ensure competitive levels of compensation and then convert the board compensation to a fully cash-based program. For example, a company with a $100,000 cash retainer and a $150,000 equity retainer would convert to a $250,000 cash retainer.

Adjustments to payout timing are also considered in order to maintain directors’ focus throughout the restructuring process. For example, companies with programs that pay out annually often convert to a quarterly program that is payable in advance of the beginning of the quarter. Additionally, increased director time commitment should be considered when evaluating potential changes to compensation after the restructuring has been completed, as additional compensation may be warranted.

Remuneration for Special Service

In certain cases, the board will form a separate restructuring committee in anticipation of the specialized tasks associated with the restructuring.  The restructuring committee remains in place for the period in which the company is in bankruptcy. Or, a board member might be appointed the chief restructuring officer (CRO). In exchange for service on the special committee or as a CRO, additional compensation commensurate with a director’s additional duties is warranted. The amount and the form of that compensation will vary widely, depending on the company’s needs and the individual director’s contributions.

Return to Meeting Fees

Under normal operating circumstances, boards have moved away from paying meeting fees and instead use a fixed retainer structure. In the context of a restructuring, some companies consider reverting back to meeting fees to reflect the additional workload and greater board engagement required during the restructuring process. However, other companies stick with the fixed retainer, which simplifies the administrative process and removes the challenge of determining what is considered a board meeting.

When approaching a potential restructuring, companies should ensure board compensation plans are fair, reasonable, and aligned with market practices. Not only is this best practice, but doing so demonstrates a company’s commitment to its board and accountability to stakeholders during the restructuring process.  

Brian Cumberland is a national managing director with Alvarez & Marsal and leads the restructuring compensation practice. J. D. Ivy is a national managing director with Alvarez & Marsal and leads the compensation and benefit practice.

COVID-19. Uncertainty. Fear. Recession. Fiduciary Duties.It’s essential that directors know what to focus on and when.

Become an NACD member today.

NACD: Tools and resources to help guide you in unpredictable times.

Pandemic Response: Considerations from Fortune 500 Compensation Committee Chairs

Tasked with rewarding and incenting executive leadership appropriately and in keeping with the company’s strategy, today’s compensation committee faces challenges on a variety of fronts, including the highly volatile stock market and uncertainty regarding the nation’s health, economic, and business conditions resulting from the COVID-19 pandemic for the remainder of 2020 and beyond.

NACD, along with Farient Advisors and Weil, Gotshal & Manges, recently convened 50 Fortune 500 compensation committee chairs for a meeting of the NACD Compensation Committee Chair Advisory Council. The delegates represented companies across various industries, and the companies they serve have been affected by the crisis in an uneven fashion. But whether a company is experiencing a boom or is going through a severe contraction, a steadfast board focus on ensuring long-term viability remains critical.

Early Implications on Executive Pay

Even with the underpinning of fundamental good governance, compensation committees are challenged to deploy the right tools to meet both short- and long-term objectives. Multiple delegates noted that while many of the measures that can be taken are reversible, the cultural and shareholder ramifications will live on. Delegates discussed board actions for all of the elements of compensation:

Reduce base salaries. One delegate’s committee took swift action on compensation, implementing a 5 to 10 percent pay cut for executives, and a 20 percent pay cut for directors.Defer cash compensation. A delegate noted that their board is deferring 20 percent of pay for salaried employees, which will be paid out next year with a small interest payment.Give stock in lieu of cash. Exchange cash salary for stock in order to preserve cash.The discussions also focused on the potential changes that the crisis might bring to long-term executive compensation practices. While delegates pointed out that patience is a useful tool, they also shared concerns over short-term market volatility and issuing stock when prices are depressed. As prices recover, grants made during the crisis could result in a perceived “windfall of compensation” for executives. Several delegates suggested taking a 30-, 60-, or 90-day average for stock-valuation purposes, rather than using the value on the date of the grant, though clear guidance on when the clock starts for these averages is hard to come by.

Discretion (manual adjustments to final pay outcomes) should be used judiciously by compensation committees. “In an environment where we can’t reasonably say what the future holds, we are thinking about the short, medium, and long term in decisions we are making now,” said one delegate. “This is why discretion is so important. It offers flexibility. The compensation committee is in the best position to assess what is right and what is fair.”

For director compensation, many delegates struggled with the difference between stock price used for executive grants made pre-crisis and the director grants made mid-crisis. “Many of us granted shares to executives in February at two or three times higher than the upcoming director grants in May,” commented one delegate. One remedy offered by Robin Ferracone, CEO of Farient Advisors, is to use the same price for directors as the earlier grant to executives: “If employees were granted stock at one price and the price now differs for directors, you can use the executive grant price to determine the number of shares a director should receive, essentially using the same price to translate value in shares.”

Crisis Strategies for the Compensation Committee

Having an established playbook that compensation committees can work from but also make adjustments to in response to changing conditions can help bring stability and order to their discussions.

Compensation chairs should consider what issues need to be addressed immediately because of their urgency, which questions are better left to the midyear discussions as the situation plays out, and which decisions are best handled at the end of the year with the benefit of full perspective. Delegates highlighted the following items for committee focus:

Protect the quality of decisions. In any crisis, there is a tension between acting swiftly and acting with complete information. One director opined, “It’s not the time to rush and take actions and panic—that may bite us in the future. Rushing to deal with the series of comp issues that affect an important subcomponent is something you should think long and hard about.”Use your compensation philosophy as a guidepost. As one delegate thoughtfully noted, “Get out your comp philosophy and principles. Keep with them. That lens will serve us well as we come out of this.”Use scenario planning to quickly course correct. Consider not only what the right thing to do for the business is right now—such as pay adjustments—but also that action’s long-term impact on the strategy. “It’s important to think about the potential impact of granting a lot of equity right now; we could see share dilution and deplete our share reserve quickly,” one delegate observed.Coordinate closely with other committees. The crisis is impacting all facets of the company and the board, making open communication with other committees more important than ever. One delegate said, “My early observation is that committees and boards are becoming extremely collegial and making better decisions as a group and leaning on each other to get to the right inclusion.”A Time to Demonstrate Leadership

Among the environmental, social, and governance (ESG) factors, the S (for social) currently stands out the most for compensation committees. The committee must consider how to continue to motivate and reward behavior consistent with the company’s culture, and many are using the crisis as an opportunity to further align with their stakeholders, especially employees. Concern for workers’ safety is paramount, but mental health is also top of mind during the crisis. Delegates pointed out that in some instances, this is bringing organizations closer together. In some notable examples, executive teams, directors, and employees themselves are contributing to employee emergency funds to support their colleagues in their time of need.

Strong, compassionate, and empathetic leadership clearly matters more than ever. Now may be a time for high-performing CEOs to impress outside stakeholders through action in the ESG area. “I think that ‘tier one’ CEOs are doing exactly what the ESG pundits seek—that is, demonstrating leadership on corporate purpose, and focusing on long-term sustainability of the organization. Let’s see if that gets recognized,” said one delegate.

Model Your Values

Speakers and delegates both underscored that while this is a time for making the hard decisions—from layoffs and furloughs to reductions and deferrals—it is important to note that being forthright in communications and honest about what the company can and cannot do can make the difference between success and failure with stakeholders, including employees.

“It may sound counterintuitive, but talking to HR, employee engagement is increasing because of our communication,” one delegate said. Honest communication can lead to increased engagement, retention, and goodwill in the communities where employees live.

Howard Dicker, a partner at Weil, Gotshal & Manges, further noted that regulatory filings may be necessary for employee reductions and other material actions taken during this time. “It’s all about transparency about how decisions were made,” Dicker shared. “Investors, in particular, may be more forgiving in this environment, but will want to understand the rationale and process behind the decision.”

In this turbulent time, the role of the compensation committee will be heightened and come under intense scrutiny. The path forward may not be easy to spot or to traverse. As one delegate asked, “What if our assumptions are wrong—that this is more than just a shock for a quarter or two? What framework should compensation committees be using if this level of volatility is the new normal?” Only time will answer that question.

For now, bright spots do exist. Committees and boards are coming together more than ever before, and whether this time is a one-and-done or the start of a new normal, as one delegate said, “We may well emerge from this [crisis] with deeper and greater long-term employee engagement.” Behaviors refined now to survive the COVID-19 crisis may set a standard for new relationships with employees, customers, suppliers, and investors going forward.

And that will take leadership from the top.

A full summary of the April 2020 meeting of the Compensation Committee Chair Advisory Council can be found here.

Editor’s note: The meeting was held using a modified version of the Chatham House Rule, under which participants’ quotes are not attributed to those individuals or their organizations, with the exception of cohosts.

COVID-19. Uncertainty. Fear. Recession. Fiduciary Duties.It’s essential that directors know what to focus on and when.

Become an NACD member today.

NACD: Tools and resources to help guide you in unpredictable times.

Think Carefully Before Rewarding Executives Who Cut Their Salaries

During the early stages of the pandemic, we have seen many executives take salary cuts, especially in industries substantially closed down by travel restrictions or shelter-in-place orders. These cuts are consistent with past economic crises, as they reduce expenses, preserve cash, and demonstrate compassion for employees and customers who are suffering economically—or even physically in this case.

In past crises—the 2008 financial crisis, for example—we saw many instances of compensation committees “reimbursing” executives for their salary cuts with outsized equity grants. Some also made up for unearned annual bonus plans with equity grants in the name of retention and alignment with shareholders. Grants came at times of depressed stock prices and were usually for a larger number of shares than normal since grants were generally determined according to the then-current stock price of the underlying equity.

As the market recovered, these grants accrued significant value. With the proxy statement reporting the dollar value at the time of grant, these later gains were not apparent until executive officers reported their gains upon disposition of their shares (often, years after the grant). While there were a few academic studies of these gains, they attracted no lasting attention from investors or the press.

Given the market’s tepid response to executive gains from equity granted at the time of salary cuts and zero bonus payouts, why not do it again? After all, those arguments about retention and shareholder alignment are very appealing. And the recovery of any particular company is not a slam dunk, particularly in the current unique market circumstances.

Despite what a jaded investor might say, an equity grant today is not a sure road to riches. Still, we urge caution in approaching a decision to make such a grant and some care in determining the size of the grant if you choose to make one.

Many directors will remember the uncertainty of the financial crisis and the circumstances under which they were making compensation decisions. This time, there are weighty differences in both the economic situation and the social background against which we will be making these decisions.

How COVID-19 Is Different

First, to set the context: COVID-19 is truly an exogenous factor impacting businesses. In the 2008 financial crisis, many people in a number of industries related to mortgage finance and homebuilding had participated in or benefited from the overheated housing market—it was a systemic outcome.

From these facts, one can argue that we should be more protective of executive interests today than we were back then. But that claim is countered by a much bigger factor—people are facing potential illness and death, in addition to job losses. This is a level of threat far beyond not being able to pay your bills. Although executives can and will die, too, the broader workforce is especially affected, particularly those in essential services.

Second, the pandemic has been compared to war, and war profiteering is one of the behaviors most repugnant to our societal conscience. We have already seen it in the public reaction to people buying up face masks to resell at outrageous prices in order to make a quick buck. Combine this with changes in social media, which is a much greater factor today than it was 10 years ago: Perceived offenses by corporations and their executives light up the Internet like never before, and we all know that perception can quickly become reality.

Third, we have known from the outset that entire industries are going to be transformed after the recovery due to consumer experiences shopping from home, people remaining reluctant to attend large gatherings, and reduced recreational and business travel. These transformations are going to seriously impact a very large proportion of the workforce. For others in less directly public-facing sectors, working from home may become more permanent, which will also significantly alter those businesses and workers and will likely then have ripple effects on transportation, commercial real estate, and other industries.

Finally, societal and investor demands are different today than they were a decade ago. In the United States, the increasing demand for social support services, especially health care and unemployment protection, will be accelerated by the nature of this crisis and the uneven governmental response.

Even prior to this crisis, investors have increased their demands for corporate action on sustainability, social, and environmental issues over the past several years. The economic impact of COVID-19 will probably result in a slowing of the pace of these broader demands as investors worry about earnings and stock prices, but this movement is not going away and may become sharply focused on the social services element.

What This Means for Equity Grants

Looking ahead three to five years, when the economy has fully recovered and stock prices are again robust, the executives who have been given extra equity grants today will begin cashing in on their gains. Data relative to these transactions are easy to obtain, and studies about them will be published.

Unlike similar studies published in the middle of the last decade, these reports are likely to attract major attention. Investors are likely to hold the directors who gave out those equity grants, and the executives who are still active, accountable. The consequences for both individuals and organizations could be much greater than they were the last time around, especially if those studies are published in an election year when the political climate is even more turbulent than normal (and there is little reason to expect that is going to settle down). While it is human nature to forget quickly, it is risky to rely on that happening a second time.

So, back to our original question: How does a director approach the issue of equity grants in an environment of salary cuts and zero bonuses? Here are some questions to ask.

Was our stock price in early March truly reflective of our economic value? Just as today’s price may be too low, the high price was probably on the generous side relative to performance—so what is an appropriate “normal” price for the stock?What is your estimate of how much cash the executive will lose in foregone salary and unearned bonus?If you make an equity grant now (whether a regularly scheduled award or a special grant), how much will the executive gain when the stock price gets back to “normal”? After all, the investor is only breaking even when “normal” is achieved, so asking whether the executive wins in that scenario is appropriate. A typical dollar-value grant made when the stock price is unfairly depressed can make up for a lot of foregone cash compensation (putting aside the temporary stress of the executive’s reduced cash flow).What else are you doing for the executives in terms of adjustments to incentive award calculations or using discretion in determining awards?Is the retention argument compelling in your case? Relatively few executives are truly vulnerable in the best of times, and in the worst of times, few competitors have an appetite for poaching due to their own problems. True retention issues in reasonably performing companies are almost always individual-specific and do not apply to the executive population as a whole.By answering these questions, you can better determine whether you need to do something to compensate executives for their salary cuts and, if so, what a reasonable, well-thought-out approach is to doing so. Further, in being purposeful about how you determine if it’s appropriate to “make whole,” you have already established a solid basis for the next action: creating a proactive public communication plan.

David Swinford is president and CEO of Pearl Meyer.

COVID-19. Uncertainty. Fear. Recession. Fiduciary Duties.It’s essential that directors know what to focus on and when.

Become an NACD member today.

NACD: Tools and resources to help guide you in unpredictable times.

As Work Environments Drastically Shift Career Partners International Offers Adaptive Support

As the world experiences the compounding effects of COVID-19, communities and workplaces are in a state of flux. Career Partners International responded to this global pandemic by launching a variety of complimentary services to support organizations, leaders, and employees. Through our more than 50 Members and 300 locations around the globe, we continue to support both individuals and organizations in their time of need.
On March 20th, which already seems like a long time ago, the CPI website was revamped with a new segment of free materials for workers who have been laid off due to COVID-19 and have no professional assistance.  With unemployment levels rapidly rising, these resources help guide the unemployed through stress management, developing a resume, preparing for interviews and more, preparing them to re-enter the workforce as soon as possible.
With companies instantly being forced into a state of remote work, there are many questions of how to make this new structure function.  CPI launched a series of live and recorded webinars to support leaders and their teams.  Terry Gillis, of Ahria Consulting – A CPI Firm, spoke on the importance of Leadership in Turbulent Times.  CPI Austin, Texas led a group discussion on best practices of Leading a Newly Remote Workforce.  Anthony Raja Devadoss, of PERSOLKELLY – A CPI Firm, will be hosting an event on Managing the Virtual Workplace with Trust.  Each of these events are free and open to the public with more to follow.  If you have not been able to participate, be sure to visit our LinkedIn page to view the recordings.
CPI career transition services have been expanded in response to changes in the job market.  Current participants have had their programs extended, at no charge to client organizations.  This extension will allow participants more time to access materials and to adjust to changes in hiring practices.  Additionally, all coaching and group events have moved to virtual delivery, maintaining the connection and local expertise that is vitally important in a job search and a key strength in CPI.
“At Career Partners International, it is our privilege and responsibility to help those in need.  This is a time unlike any other in recent memory; a time in which we all focus on moving society forward.  Our Members continue to do that very thing, acting quickly and, as our Mission states, ‘…embracing each individual and organizational challenge uniquely’.  Continuing to pair people with innovation, we are providing uninterrupted service by delivering services remotely to support clients and participants throughout the employee lifecycle.
These additional offerings are our way of giving forward and making sure companies and employees affected by this economic shift have the means to recover quickly.  Many aspects of society have and will forever change.  One thing that will not change is our commitment to our clients, participants, and communities.” Bill Kellner, CEO of Career Partners International.
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The Bright Side of Working from Home

Facing an instant shift to working from home for a large percentage of the global population, Career Partners International has hosted multiple webinars on how to lead and support your teams through these new challenges.  One of the repeated themes is shifting one’s mindset to focus on positives and the factors that can be controlled.  Our headquarters staff has worked remotely for years; many of us having made the transition from a corporate office to our home offices.  This setup was deliberate and intentional for our team, it allows us to better support Members and clients around the world.  Over time, through trial and error, each of us have built structure and systems into our workday.
Here are a few suggestions from across our “offices”, broken down by must-have items and unique perks, that you might adopt to make this transition a little easier.
Must-Have Items
Really Good Coffee
Quality headphones and a microphone. When life is lived via Zoom, these tools are indispensable.  The headphones are also good for drowning out background noise.  (He types blissfully unaware of the chaos a toddler is raining down in the other room.)
Natural light. If possible, get a view and bring some sunshine into your day.  No more beige box cubicle walls!
Upgrade your touchpoints. Pens, keyboard, notebooks, etc.  These are no longer getting lost or damaged so invest in items that are more pleasant to use.
A second “office”. Have an alternative spot to move to when you need to change gears.  Kitchen, deck, bedroom… anywhere you can refocus and remain productive.
Unique Perks
Seriously, drink good Coffee. The world tends to shine a little brighter when properly caffeinated.
Bike rides, dog walks, a nap in the hammock, or a quick jog around the neighborhood at lunch.
No traffic. Wake up at 7:55 for that 8:00 meeting.
Nobody is around to judge your unusual taste in music.
Save money and eat healthier with access to a personal chef. (That’s you.)
Get comfortable. No one needs to know that you’re wearing mesh shorts, yoga pants, or a grass skirt in a video meeting.
Working from home is not all rainbows and sunshine, but by focusing on the good and taking advantage of the accompanying benefits it becomes much more enjoyable.  Don’t forget to keep connected with your teammates.  Log into a call 5 minutes early to chat, send a note to check in via Slack, or shoot off that funny email to your group.  Just because you are no longer in the same office does not mean you cannot still be connected, productive, and happy.
Written by Chris Boyd
Marketing Director at Career Partners International
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