NEW YORK—April 1, 2020—Executive compensation consultancy Pearl Meyer warns that while providing a record-breaking $2 trillion in emergency relief to various individuals and businesses across the nation impacted by the COVID-19 global pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) may come with plenty of strings attached. The firm has issued a client alert that outlines what is known so far about executive compensation and workforce provisions in the CARES Act, and outstanding questions to be addressed.
"The CARES Act was just signed into law last week, and we know that additional clarity on several items related to executive compensation will be needed from the treasury secretary as relief is authorized," said Deb Lifshey, managing director at Pearl Meyer. "However, because there is so much to digest, we want to ensure that our clients have as much information as is available right now in order to make appropriate decisions in the near-term."
To survive, many companies may have no choice but to participate in Title IV assistance under the CARES Act. However, others should weigh whether or not taking aid is worth the required concessions. Regardless, compensation committees should be knowledgeable about the impact on their management teams and workforce at large. Pearl Meyer recommends the following actions:
- Identify which employees or officers earned in excess of $425,000 and/or $3 million in 2019 with reference to 2019 W-2s. For named executive officers, also check the numbers reported in the Total column of the Summary Compensation Table. These estimates should suffice until further guidance is available from the treasury department with regard to the definition of "total compensation."
- For employees who received over $425,000 last year, compute what has already been granted in 2020.
- In some cases, companies may have already exceeded the limit by making equity grants early in the year.
- Check to see if any deferred compensation balances are scheduled to be paid out this year.
- Until further guidance is available, consider whether compensation that exceeds the limits may be deferred so that the limits are met within a 12-month period.
- Review all employment, change-in-control, or other contractual commitments with employees who earned over $425,000.
- Check to see whether there are legal obligations to pay in excess of the new limits, as well as whether there is an obligation to pay severance in excess of two times total pay in 2019. In this case, companies may be required to obtain employee consent to amendments and waivers of such provisions to come into compliance with CARES Act restrictions.
- Communicate the implication of taking aid with those that may be most impacted (i.e., those with compensation in excess of $3 million) and consider retention risks of critical talent at this level.
As further guidance is issued about how to interpret the various executive compensation provisions in the CARES Act, Pearl Meyer will publish continual updates.
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