Compensation, Covid..It's Been a Bad Hair Year
It’s been a hairy year and it’s time to get out the combs and brushes. Break out your good scissors and clippers. I hate to be the one to tell you, but your compensation plans have “COVID-hair.” We get it. It’s been six months since the last time you sat in the chair of a professional and had your ‘do done. It may have been that long since the last time you covered your roots with someone other than an off the shelf solution. It’s time to get prettied up for the holidays!
It’s time to beautify your plans. They deserve it. They have sat quietly for months while you focused on higher priority projects. You had to put some executive pay on hold for a while. There was the whole layoff thing. Figuring out the furlough fiasco turned out to take more time and effort than you imagined. Heck, even dealing with your 401K or PTO turned out to be challenging in these odd times. But it’s now September and compensation planning season is upon us.
Let’s take care of the basics first. That annual incentive or bonus plan probably won’t work the way it was designed. You have about 60 days to figure out what you’re going to do, then it’ll be time to baste a turkey and wrap some presents. Will you have any money to share with your best performers? If not, can you quickly design something else of value, get it approved and roll it out while people are still paying attention? Getting the tangles out of your short-term incentives will make everything else just a bit easier.
When your hair is clear of knots, it’s time to get restyled. Your long-term incentives and equity compensation may have weathered the storm just fine, but it’s more likely they need some help. Are your options still in the money? If not, what are you going to do about it? Underwater options aren’t simply seen as having no value, they are active demotivators. You seldom hear stories about the options that turned into value, but you always hear about the options that stayed underwater!
And what if you have RSUs? Sure, the strike price isn’t going to be an issue, but what if you communicated RSUs as having a dollar value at the time of award? If your stock price has dropped, have you thought about how you will communicate the loss in value? And, if you have arranged for participants to sell-to-cover to meet their tax obligation, is your stock volume performing well enough to cover all the shares they may need to be sold? And, what will these awards look like next year? Are you prepared to grant wildly larger numbers of units because of a stock price collapse?
We know that it’s kind of cool or amusing to rock a vintage hairstyle from past decades, but it doesn’t work well with compensation programs. Now is the time to schedule your appointment with a professional and get things cleaned up for the new year. On the downside, it’s hard to know exactly what the cool kids are doing because you have seen them all summer and their data may not even be reflected in the market data.
A good start is something familiar with a nod toward an unpredictable future. Perhaps programs without too many bells and whistles, that incorporate a better out-performance component that you may be used to. The most important thing is to get started before you are stuck in year-end processes and unable to act at all.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He is a “Compensation Futurist” who works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.
About FutureSense
FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.