On Oct. 15, 2020, Institutional Shareholder Services (ISS) released
preliminary FAQs on its approach to analyzing executive pay decisions
relating to the COVID-19 pandemic.
Summary of ISS Guidance and Key Takeaways
Temporary Salary Reductions
Companies should consider the impact of temporary salary reductions on an
executive’s total compensation and whether there is a corresponding
decrease in target incentive payout opportunities.
Changes to Bonus/Annual Incentive Programs
Companies planning to implement certain changes to bonus/annual
incentive plans as a result of the pandemic should ensure that disclosures
relating to such changes are robust and clear and that underlying rationales
are reasonable.
ISS expects that many companies will make adjustments to annual incentive
programs, which may include changes to metrics, performance targets and
measurement periods. Those companies most severely impacted by the
pandemic may suspend their programs altogether and instead opt to make
one-time discretionary payments. Other companies may implement a
combination of these approaches. While ISS would consider these actions
problematic under normal circumstances, it may view such actions as a
reasonable response to the extraordinary circumstances of the current
economic downturn so long as the justification and rationale for the changes
are clearly disclosed and the resulting payouts appear reasonable.
ISS will continue to evaluate incentive programs on a case-by-case basis, but
additional disclosures will be necessary to allow investors to evaluate
COVID-19-related changes to annual incentive programs or discretionary
Key disclosure items include (but are not limited to):
 The specific challenges incurred as a result of the pandemic and how
those challenges rendered the original program design obsolete or the
original performance targets impossible to achieve, as well as an

explanation of how changes are not reflective of poor management
 For companies making midyear changes rather than one-time
discretionary awards, an explanation as to why that approach (rather
than the alternative) was taken and how such actions further investors’
 For one-time discretionary awards, which should still carry
performance-based considerations, disclosure of the underlying
criteria, even if not based on the original metrics or targets. Generic
descriptions (such as “strong leadership during challenging times”)
are likely to be insufficient.
 A discussion of how resulting payouts appropriately reflect both
executive and company annual performance. This disclosure should
clarify (or estimate) how the resulting payouts compare with what
would have been paid under the original program design. ISS notes
that above-target payouts under changed programs will be closely
 Companies that have designed the following year’s (2021) annual
incentive program are encouraged to disclose information about
positive changes, which may carry mitigating weight in ISS’ qualitative
In the context of ISS’ analysis of incentive plan goal rigor, lower
performance expectations that reflect external factors (such as operational
impacts due to the pandemic) may be a reasonable explanation for setting
lower goals. Even so, a lower performance target should be accompanied by
disclosure as to how the board considered corresponding payout
opportunities, especially if such payout opportunities are not
proportionately reduced.
Changes to Equity/Long-Term Incentive Programs
Companies should consider the nature and scope of contemplated changes
to equity/long-term incentive programs as well as the stage of the applicable
award cycle. Companies should also ensure that accompanying disclosures
are sufficiently detailed to allow investors to make meaningful evaluations of
proposed changes.
COVID-19-related changes to equity/long-term incentive cycles that are
currently in progress (e.g., fiscal years 2018-2020 or fiscal years 2019-2021)
will generally be viewed negatively, especially for companies that exhibit a
quantitative pay-for-performance misalignment. Based on investor

feedback, ISS notes that these programs should be designed to smooth
performance over a long-term period and should not be altered after the
beginning of the cycle based on a short-term market shock.
ISS notes that investors generally do not expect to see drastic changes in the
long-term incentive program for award cycles beginning in 2020 unless the
underlying business strategy has fundamentally changed. More modest
alterations to the program, such as moving to relative or qualitative metrics
in the event of unclear long-term financial forecasts, may be viewed as
reasonable. However, more drastic changes, such as shifts to predominantly
time-vesting equity or short-term measurement periods, would continue to
be viewed negatively. Companies should clearly explain any changes to the
program to allow investors to evaluate the compensation committee’s
actions and rationale.


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