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Few boards have made decisions about how to approach equity grants that will be awarded to directors in conjunction with annual meeting dates. However, compensation consultants are warning about a failure to address the misalignment between the number of shares awarded to executives at the start of the year before the crisis impacted stock prices with the grants that will be made to directors in the coming weeks.

For boards, fixed-value grants made to directors will be decided by crisis-impacted share price values. Once the market rebounds, directors could see a significant windfall—one that won’t be shared by executives or furloughed or laid-off employees either.

“Discretion is the better part of valor,” notes Jan Koors managing director at Pearl Meyer.  She adds that many boards are taking a wait-and-see approach. “That door, if you will, is still open. But slowly and surely, it will close and the board will have to make a call one way or the other.”

Boards have been holding frequent meetings but many directors aren’t thinking about their compensation at the moment. Koors says she has been advising board clients to at least consider the issue and think about whether they want to make an adjustment to director compensation given the unprecedented circumstances of 2020 and the fact that this crisis can’t be attributed to management.

“I am talking to virtually all of my clients about this,” says Koors. “You have to at least have the discussion.” Once this issue is considered by committee chairs, she says, they typically decide that “it doesn’t feel right” not to adjust directors’ equity grants to be in line with what executives will receive.

“There’s a certain symmetry to saying, ‘We’re going to use the same price as managements’ share grants,’” says Koors.

For boards, the cuts to cash retainers represent a larger impact on total director pay overall, but board members are facing significant reputational risk over equity issues and opening themselves up to criticism from executives and employees dealing with unemployment and threats to their health and lives.

“Realistically, even if we go back to 2008 to 2009, you didn’t have Twitter, you didn’t have social media and you didn’t have an environment where everyone is a citizen journalist,” says Koors. Boards could be viewed cynically if they don’t take a retainer cut in unity with management and the broader workforce, and then also grant themselves the same amount of stock when equity is at the lowest price seen in years, she says.

“Do they risk appearing tone deaf?” says Koors. “Absolutely they’re going to look tone deaf.”

Koors says that among the boards considering adjustments that she works with, directors are considering either using a 90-day moving average to determine the number of shares to award to directors, or simply abandoning the average and granting the same number of shares awarded last year.

“Normally, this is just kind of an autopilot thing,” says Koors. “But if boards don’t stop to think about what can unintentionally happen by not adjusting their own pay, they could face increased reputational risk.”

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