The financial impact of the current pandemic has affected most aspects of the compensation programs for executives and nonemployee members of the Board of Directors. Stock ownership requirements covering those individuals are no exception and will be reviewed by companies as they assess compliance with those guidelines.Stock ownership guidelines are a near universal practice at larger publicly traded companies and are considered a governance best practice. Ownership guidelines require executives and directors to maintain meaningful stock ownership during their tenure. Officers have significant additional investments in the company " usually through several years of outstanding, unvested equity awards. In the case of performance shares, the award opportunity is leveraged to both achieve specified goals and stock price movement. This Viewpoint focuses on those elements of ownership guidelines often subject to greater volatility in company stock price and performance.

As uncertainty over the future of the COVID-19 pandemic continues, organizations may struggle to develop an accurate earnings forecast for their next fiscal year " particularly companies with a new fiscal year starting in calendar year 2020.

Companies are facing unprecedented challenges as the spread of COVID-19 has drastically changed the business landscape

Pay Governance has been tracking the executive and board of director pay reductions implemented by a cross-section of publicly traded companies to provide insight into company responses to the ongoing COVID-19 pandemic. These reductions preserve cash for companies that have been severely impacted by the crisis and demonstrate empathy with employees, suppliers, and communities impacted by the pandemic.

The COVID-19 pandemic is an unprecedented global crisis. The economic impact of the pandemic has resulted in the Dow Jones Industrial Average (DJIA) initially losing 10,000 points, approximately one-third of its value. Some companies have experienced a decline of 75 percent or more in their share prices. Certain industry sectors, especially airlines, oil and gas, hospitality, and retail, have been hit especially hard by the pandemic-caused economic downturn. Many market analysts predict a robust market recovery, but questions persist: how soon will the recovery occur; when will stock prices return to pre-pandemic levels; will all industry sectors experience a full economic recovery?

The COVID-19 pandemic and accompanying economic disruptions have created significant operational and financial challenges for most companies. In addition to these challenges, companies have been impacted by record levels of share price volatility. For companies that are preparing to grant annual equity awards in the second quarter of 2020 or later in the year, the timing of these equity grants presents a unique challenge: if companies calibrate equity awards based on significantly lower stock prices, share plan usage and dilution will increase, potentially resulting in negative investor reactions; conversely, calibrating equity awards based on a higher-than-current price could potentially be detrimental to employee morale. Therefore, in some cases, companies may benefit from the use of smaller, more frequent grants (e.g., semi-annually or quarterly) to potentially mitigate these issues. Since most calendar year companies already made their equity grants in Q1 2020, semi-annual or quarterly grants would not be applicable unless high share price volatility persists into next year.

For most companies, the application of discretion in determining incentive payouts in recent years has been limited to reductions in award values or rare occasions when a committee/board determined that management should not be penalized for unforeseen and/or unanticipated events outside of its control.

The simplification of non-employee director pay programs over the past decade has resulted in a model that predominantly focuses on an annual cash retainer, an annual stock award, and additional board leadership retainers.

The current economic environment is different from past slowdowns; this is in part because of government mandates implemented to limit the spread of COVID-19. Most companies have quickly shifted to cost-cutting to preserve cash, margins, and the bottom line.

On March 23, Pay Governance released a Viewpoint article discussing COVID-19's impact on executive compensation programs. The article " "Everything Should Be On The Table" " outlined several high-level initial considerations that should be "on the table" as possible responses to the disruption caused by COVID-19.