Determining Equity Grant Sizes In the Volatile COVID-19 Environment


While so many of us have been forced to quickly adapt to new daily routines, the near- and longer-term implications of COVID-19 for global business practices and governance are only beginning to take shape. The underlying governance and design of executive pay programs are likely to endure, but when it comes to how these programs are administered, we believe that some adjustments may be needed in response to a very different financial and economic environment.

Given the timing of COVID-19, the range of implications and their relative urgency will vary with company circumstances. In the executive pay space, one issue many companies will face relates to calibrating equity awards in an environment with substantially depressed and volatile equity markets. Specifically, most companies typically start the award calibration process with a targeted dollar value for each participant and proceed to determine the number of units to grant based on the current stock price and other factors. Below we illustrate the process using a target grant value of $250,000 delivered in restricted stock units (RSUs) at an assumed 3/1 stock price of $50 and compare it with the same calibration using a 3/31 price of $25.

For most companies, using this historical approach — combined with the recent collapse in share prices — would create an untenable situation for a variety of reasons including the expected impact on burn rate, dilution and share reserve life, and possible proxy advisor and shareholder reactions.

Given the varying degrees of urgency in addressing the topic, this Viewpoint will start the discussion to highlight a variety of circumstances, considerations, and alternative approaches for companies to consider and discuss in the near-term. In the coming weeks, we will continue researching these issues and consulting with our clients in order to find creative solutions to a variety of circumstances. We will publish a future Viewpoint on this topic including a summary of current/recent market practices and our related observations.

Near-Term Equity Award Calibration Circumstances

As a starting point, this issue is not new: companies faced similar circumstances in making 2009 equity awards following the equity market collapse in late 2008 and early 2009. However, we are in a unique executive pay environment — one which is much more heavily scrutinized with annual quantitative and qualitative reviews by proxy advisors as well as shareholder oversight in an annual Say on Pay vote which did not exist following the 2008 financial crisis.

For companies with a calendar fiscal year, employee equity awards are commonly granted between late-January and early- to mid-March. For many of these companies, annual equity grants have already been awarded using traditional approaches based on a variety of contemporary factors, including available market compensation data, share prices on (or prior to) the date of grant, performance, and internal equity. As a result, calendar-year executives and Compensation Committees may think that, at least in the immediate term, the issue of equity award calibration is largely behind them.

While we realize many companies with a calendar fiscal year end likely issued their annual grants in Q1, many management teams and Compensation Committees will face the challenge of determining appropriate equity award sizes under one or more of the following scenarios:

Annual Equity Grants

  • Companies that make annual executive equity awards between April and June.
  • Companies that are about to make non-employee director awards (typically made at/around the time of an annual meeting in late-April to mid-June).
  • Companies that delayed grants normally made in Q1 due to market or other circumstances.
  • Companies with off-calendar fiscal years that normally grant later in the calendar year.

Other Equity Grants

  • New hire awards (periodic or as needed).
  • Promotional awards (periodic or as needed).
  • Retention or other special awards (if under consideration).

Considerations for Calibrating Equity Awards in the COVID-19 Environment

As executives and Compensation Committees evaluate their individual circumstances, there are several internal and external considerations that must be balanced, discussed, and decided upon:

Alternative Approaches for Calibrating Equity Awards in the COVID-19 Environment

When equity markets collapsed in the 2008-2009 financial crisis, the vast majority of companies responded by altering their equity award calibration methodology. While some companies took more dramatic actions than others, individual circumstances dictated where each company fell along the continuum. Many of the same approaches are still valid, and we expect companies to tailor their responses to meet their individualized needs.

Below, we highlight many possible award calibration approaches for companies to consider in setting near-term equity grants. While these strategies can be used in isolation, our experience suggests that reviewing a range of perspectives helps to ensure desired outcomes are balanced and fully vetted. Alternative approaches include:


As is becoming abundantly clear, COVID-19 will have far-reaching effects with company-specific and broader implications that have yet to be understood. In approaching the near-term issue of calibrating equity awards, history, logic, and good governance suggest that revised approaches ultimately are likely to result in lower equity award values for many award recipients in 2020 and perhaps into 2021.

While each company will choose a specific approach that best fits its needs, all will benefit from a thoughtful, balanced, and conservative approach to equity award calibration that responds to the current environment and can be rationally communicated both internally to employees and externally to other stakeholders.

Stay tuned for a more detailed discussion of this topic and the alternatives noted above. We will also continue to monitor company disclosures and will provide our observations in the next Viewpoint update on this topic. We will also share weekly updates on our website:


General questions about this Viewpoint can be directed to David Fitt at, Joe Mallin at, or Matt Quarles at
This Viewpoint is one in a series of ongoing articles Pay Governance will be publishing regarding the impact of COVID-19 on compensation programs. All of our Viewpoints can be found on our website at
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