CEOs are reevaluating how compensation aligns with performance, risk and retention—and trying to gauge whether to make exceptions. After all, when pay is based on the value of the stock in order to align performance with shareholder interest and that stock tanks due to external factors—e.g., sweeping tariffs—retention becomes a concern.
But Matt Turner, managing director at Pearl Meyer, cautions against overreaction. “There’s so much unknown about what will happen with the tariff situation. It’s better to wait and see… if you make an adjustment now and it looks like you’ve benefited from a windfall, that can be really bad optics.”
Another expert says the uncertainty is prompting boards to favor flexibility and defensibility over rigid performance frameworks. “The ultimate objective in a compensation system is to have balance because balance should lead to durability in both favorable and unfavorable economic climates,” he says. “Moving toward a relative measure as opposed to setting this absolute also takes out some of the imprecision.”
Turner agrees that equity remains a critical tool. “Using time-based restricted stock makes a lot of sense,” he says. “It may fall 20–30 percent in a year, but it’s still helpful in a retention situation.”
Continue reading...