13 March 2020
Companies are facing imminent grant and vesting events under their incentive plans in times of substantial stock market turmoil, business disruption and general uncertainty. What are the questions you might be being asked by your internal stakeholders and investors, and what decisions might need to be made?
- How do we meaningfully value outstanding awards?
- Can we delay grants and vestings (and should we)?
- Are these the “exceptional circumstances” permitted to grant outside of our usual permitted window?
- What grant price should we use to calculate the number of shares under award - is it fair or unfair to use the current share price?
- How many shares will we need when granting new awards?
- How will this impact our dilution limits?
- Should we re-think our hedging strategy?
- Are our performance conditions still appropriate, and can they be changed?
- Should we exercise discretion when vesting awards - is now the time to override those formulaic outcomes?
- What do we do about options that are now underwater?
- What does our remuneration policy permit?
- For our all-employee plans - do we have the answers if employees want to withdraw funds or stop contributing? Is now actually a good time to launch, re-launch or switch-up our offering?
- Are there any clauses in our plan rules that help us step outside our usual practice?
- How do we communicate the effects to our participants?
Tapestry comment
The impact of the Coronavirus (COVID-19) is developing globally with alarming speed. More than ever, we are all having to adapt quickly to keep to “business as usual”. Companies are taking steps to protect their businesses and employees, and to mitigate the impact of the virus. These steps will involve accommodating pay and incentives in our shared new normal.
You may wish to reconsider standard or existing practice for your incentives in light of extreme stock market volatility and general business uncertainty. Delaying grants, revisiting whether existing incentives are fit for purpose and mitigating share and cash costs are some of the factors you will have to consider when examining your reward and incentive arrangements. Your individual company situation will, of course, be influenced by the markets and sectors you are in, and the calls from your particular investors.
If you would like to discuss any of the above to see what’s possible under your incentive plan rules and associated policies please get in touch, and look out for our upcoming webinar invite.
On a wider note, we want to let you know that Tapestry has measures in place to ensure business continuity for our clients and the safety of our team. We are confident that we can continue to deliver high quality advice during these circumstances, as we are a flexible business that can adapt well to changes as they evolve. Tapestry will continue to remain available to partner with you in navigating these unique times.
We hope that you and your loved ones are, and stay, healthy and well.
Team Tapestry