2022 Compensation Committee Planning Points

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Jason Brooks, a Managing Director and BDO’s Compensation Consulting Practice Leader, to highlight key planning considerations for compensation committee directors as we rapidly approach the end of 2021 and enter 2022.

Key Takeaways:

• Compensation committees are encouraged to take a current inventory of company needs in relation to their unique risk and opportunity factors as well as in relation to their competitors.
• There are further challenges to take charge of the company’s narrative in its public disclosure considerations. Historic focus on executives is no longer enough. Market expectations for disclosures concerning human capital management and related ESG factors has expanded to consider employee needs more broadly. Compensation committees should be thinking about such and incorporating into the overall company’s retention and attraction strategies of their workforce.
• Expanding responsibilities of the compensation committee should be clearly documented and reflected within its committee charter.
• Directors need to be mindful of ISS Updated Compensation Policies that indicate the “surprise” element of the COVID pandemic is no longer applicable. Accordingly, ISS will view, “as in pre-pandemic years, any mid-year changes to metrics, performance targets and/or measurement periods, or programs that heavily emphasize discretionary or subjective criteria will generally be viewed negatively. This will be of particular focus for companies that exhibit a quantitative pay-for-performance misalignment.”
• Executive and board compensation strategies may need updating for 2022 given continued economic impacts and should be accompanied by robust transparency and disclosure:
• As compensation committees consider introducing “discretionary” components into their compensation plans to counter uncertainty, they need to be mindful that these may not be seen favorably by shareholders and proxy advisors and will require enhanced disclosures supporting the use of such tactics.
• Changing performance ranges – e.g., lowering minimums/raising maximums to flatten leverage curves – may prevent small changes in performance from having significant changes in payouts, but again, would require enhanced disclosure.
• Rethink goal setting expectations of shareholders as their basis for comparing to increased revenues/earnings may not be appropriate for the company’s circumstances – e.g. holding steady or evening slight declines may be necessary.

Access:

The BDO 600 2021 Compensation Studies

BDO 2021 Board Compensation Trends Archived Webinar