For this assignment, read the following scenario:

Impact on Performance-Based Compensation Arrangements

The COVID-19 pandemic and its economic consequences are presenting special challenges for employers with performance-based compensation arrangements. In particular, many public companies that operate on a calendar year basis have recently established their company performance goals for 2020 and, thus, are faced with the prospect of having set performance targets that may now seem unlikely to be achievable, and which may not provide the performance incentives for executives and management employees that were originally intended. As proxy advisory firms have continued to focus on alignment between company performance and executive compensation, many public companies have moved toward providing a greater portion of their executives compensation in the form of performance-based cash or equity awards. It is common for cash awards to be earned on an annual basis, while equity awards may be earned over a multi-year period.

For an employer that has already set its 2020 performance goals, consideration should be given to whether the terms of the existing compensation plans or individual agreements provide flexibility for the employer to make adjustments and, if so, under what circumstances. Note that whether, or to what extent, an adjustment may be warranted also depends on the nature of the performance goals. Some metrics, such as share price or EBITDA, may be more obvious candidates for adjustment in contrast with comparative metrics, such as relative TSR, which may not need to be adjusted if an employers peer group companies are being similarly affected.

An employer that has not already set its 2020 performance goals has some flexibility to decide how to address the market volatility and uncertainty being caused by the COVID-19 pandemic. An employer may choose to postpone setting its performance goals until later in the year, or to forego granting performance-based awards altogether. An employer can also adopt performance goals that are more advisory than strictly prescriptive. However, for a public company, either approach may attract a negative response from Institutional Shareholder Services (ISS) and other proxy advisory firms as not providing a sufficiently formulaic connection between performance and compensation.

Create a conclusion using learning from Chapter 9 DeNisi & Griffin Compensation and Benefits