Compensation Advisory Partners (CAP) assessed human capital actions taken by companies in the Real Estate sector in response to the COVID-19 pandemic. Key findings include:

  • The Real Estate sector was nominally impacted by the COVID-19 pandemic.
    • 24% of the Real Estate companies in the S&P Composite 1500 Index reported human capital actions in response to the pandemic. In contrast, 41 percent of companies in the S&P 1500 reported actions.
  • Pay reductions for executives and board members are the most prevalent human capital actions in the Real Estate sector.
    • Median salary reductions were 50 percent for chief executive officers (CEOs), while median salary reductions for other executives were 21 percent.
    • For boards of directors, pay was cut by a median of 33 percent.
  • In addition to pay reductions for executives and boards, the most prevalent human capital actions in the Real Estate sector were furloughs, workforce reductions and employee pay reductions.

The PDF of the report provides additional data for the Real Estate sector.

The human capital actions that CAP is tracking include pay cuts; changes to annual and long-term incentives; furloughs; workforce reductions; suspended 401K matches; enhanced health and welfare benefits; additional pay for frontline workers; pay continuity; and workforce expansions. CAP will continue to monitor corporate public announcements of COVID-19 actions.

Compensation Advisory Partners (CAP) assessed human capital actions taken by companies in the Information Technology sector in response to the COVID-19 pandemic. Key findings include:

  • The Information Technology (IT) sector and its Software & Services, Technology Hardware & Equipment, and Semiconductors and Semiconductor Equipment industries were nominally impacted by the COVID-19 pandemic.
    • 28% of the Information Technology companies in the S&P Composite 1500 Index reported human capital actions in response to the pandemic. In contrast, 41 percent of companies in the S&P 1500 reported actions.
    • Of the industries in the Information Technology sector, Software and Services (33%) and Technology Hardware and Equipment (32%) were impacted similarly, with about a third of companies reporting actions. In the Semiconductors and Semiconductor Equipment industry, only 15% of companies reported actions.
  • Pay reductions for executives and board members are the most prevalent human capital actions in the Information Technology sector.
    • Median salary reductions were 30 percent for chief executive officers (CEOs), while median salary reductions for other executives were 20 percent.
    • For boards of directors, pay was cut by a median of 28 percent. The range of board pay cuts approximates the range for CEO pay cuts.
  • In addition to pay reductions for executives and boards, the most prevalent human capital actions in the Information Technology sector were furloughs, employee pay cuts, and workforce reductions.

The PDF of the report provides additional data for the Information Technology sector.

The human capital actions that CAP is tracking include pay cuts; changes to annual and long-term incentives; furloughs; workforce reductions; suspended 401K matches; enhanced health and welfare benefits; additional pay for frontline workers; pay continuity; and workforce expansions. CAP will continue to monitor corporate public announcements of COVID-19 actions.

Compensation Advisory Partners (CAP) assessed human capital actions taken by companies in the Financials sector in response to the COVID-19 pandemic. Key findings include:

  • The Financials sector was moderately impacted by the COVID-19 pandemic, with 27% of companies in the S&P Composite 1500 Index taking human capital actions.
  • Banks, which often have retail operations, reported the most actions (35%) – many of which were positive for employees, such as expanded time off and healthcare benefits, and one-time bonuses and additional pay for on-site workers
  • The five most prevalent human capital actions by Financial Sector are expanded benefits programs, one-time bonuses for non-executives, additional payments for on-site employees (non-executives), reducing CEO base salary, and guaranteed pay continuity for non-executives
  • Executive salaries were reduced, particularly in Diversified Financials and Insurance:
    • Median salary reductions were 30 percent for chief executive officers (CEOs), while median salary reductions for other executives were 20 percent.
    • For boards of directors, pay was cut by a median of 28 percent.

The PDF of the report provides additional data for the Financials sector.

The human capital actions that CAP is tracking include pay cuts; changes to annual and long-term incentives; furloughs; workforce reductions; suspended 401K matches; enhanced health and welfare benefits; additional pay for frontline workers; pay continuity; and workforce expansions. CAP will continue to monitor corporate public announcements of COVID-19 actions.

Compensation Advisory Partners (CAP) assessed human capital actions taken by companies in the Communication Services sector in response to the COVID-19 pandemic. Key findings include:

  • The Communication Services sector and its Telecommunication Services and Media & Entertainment industries were hit significantly by the COVId-19 pandemic.
    • 54% of the Communication Services companies in the S&P Composite 1500 Index reported human capital actions in response to the pandemic. In contrast, 41 percent of companies in the S&P 1500 reported actions.
    • Of the industries in the Communication Services sector, Media & Entertainment was particularly hard hit, with 59 percent of companies reporting human capital actions. In the Telecommunication Services industry, 38 percent of companies took human capital actions in response to COVID-19.
  • Pay reductions for executives and board members are the most prevalent human capital actions in the Communication Services sector.
    • Median salary reductions were 50 percent for chief executive officers (CEOs), while median salary reductions for other executives were 20 percent.
    • For boards of directors, pay was cut by a median of 25 percent.
  • In addition to pay reductions for executives and boards, the most prevalent human capital actions in the Communication Services sector were furloughs, workforce reductions and suspended raises and/or bonuses.

The PDF of the report provides additional data for the Communication Services sector.

The human capital actions that CAP is tracking include pay cuts; changes to annual and long-term incentives; furloughs; workforce reductions; suspended 401K matches; enhanced health and welfare benefits; additional pay for frontline workers; pay continuity; and workforce expansions. CAP will continue to monitor corporate public announcements of COVID-19 actions.

Compensation Advisory Partners (CAP) assessed human capital actions taken by companies in the Industrials sector in response to the COVID-19 pandemic. Key findings include:

  • The Industrials sector and its Capital Goods, Commercial and Professional Services, and Transportation industries were hit hard by COVID-19, as reflected by the percentage of companies taking actions in response to the pandemic.
    • Half of the Industrials companies in the S&P Composite 1500 Index reported human capital actions in response to the pandemic. In contrast, 39 percent of companies in the S&P 1500 reported actions.
    • Of the industries in the Industrials sector, Transportation was particularly hard hit, with 69 percent of companies reporting human capital actions. In the Commercial and Professional Services industry, 51 percent of companies took human capital actions in response to COVID-19, while 45 percent of companies in the Capital Goods sector took actions.
  • Pay reductions for executives and board members are the most prevalent human capital actions in the Industrials sector.
    • Median salary reductions were 38 percent for chief executive officers (CEOs), while median salary reductions for other executives were 20 percent.
    • For boards of directors, pay was cut by a median of 30 percent. The range of director pay cuts is similar to the range of CEO salary cuts.
  • In addition to pay reductions for executives and boards, the most prevalent human capital actions in the Industrials sector were furloughs, pay reductions for employees, and workforce reductions.

The PDF of the report provides additional data for the Industrials sector.

The human capital actions that CAP is tracking include pay cuts; changes to annual and long-term incentives; furloughs; workforce reductions; suspended 401K matches; enhanced health and welfare benefits; additional pay for frontline workers; pay continuity; and workforce expansions. CAP will continue to monitor corporate public announcements of COVID-19 actions.

In August 2019, the Business Roundtable came out with a new statement on the purpose of a corporation. For the first time, the focus expanded from serving shareholders and creating long-term value to serving all stakeholders by delivering value to customers, investing in employees, dealing fairly and ethically with suppliers and supporting the environment and people in the community.

While this statement is bold, it is a response to the increased focus by shareholders on Environmental, Social and Governance (ESG) matters. Investors are evaluating how companies are addressing ESG issues and their impact on the long-term sustainability and value creation for each organization. Some of the largest institutional investors, including BlackRock and State Street, have put boards on notice that they will be holding directors and company management accountable for how ESG issues are managed. The major proxy advisory firms (Institutional Shareholder Services and Glass Lewis) now provide their clients with ESG ratings for each company they evaluate, highlighting related risks to investors in these areas.

What should board members generally and compensation committee members specifically be doing to address ESG? Each board should define what ESG means for their organization as each company has a unique operating model or business strategy that may include ESG initiatives to varying degrees. Many boards are doing this. We have seen the creation of ESG committees of the board or modifications to committee charters to incorporate ESG oversight (for example, many compensation committees now have oversight of diversity and inclusion). Once companies and boards define what ESG means for them, it will be important to articulate the following:

  • Objectives for each of these initiatives
  • Criteria for assessing performance against these
    objectives
  • Approaches for holding management accountable

The governance area of ESG has improved in the past decade, with many organizations focused on strengthening shareholder rights and demonstrating the alignment of pay and performance in response to input from shareholders and shareholder advisory
groups. A strong and independent board is a key factor in governance and across industries, and many boards have embraced independent director sessions, board refreshment and balanced tenure, skills and diversity. Showcasing of governance enhancements has become common in proxy statements, and we expect companies to continue to maintain strong governance practices.

The environmental aspects of ESG have been more common in certain industries, such as energy, utilities and manufacturing, though the focus on the environment is gaining momentum across industries.
Companies are focusing on how they manage climate change, emissions, spills, water conservation and other sustainability efforts. Organizations such as the Sustainability Accounting Standards Board have developed standards so companies and investors can assess the risks and opportunities across industries.

The social aspects of ESG have focused on human capital and the impact of a company’s products or policies on society. The topics of human-capital management, employee engagement and gender pay equity have increasingly worked their way into board meeting conversations, with gender pay equity raising the fundamental issue of representation and inclusion. These statistics are measurable, and detailed analysis over time can help hold management accountable and demonstrate progress. It is now very common for compensation committees and, in some instances, the full board to receive updates on representation across an organization.

A natural question is to what extent should ESG factors be incorporated into incentive compensation plans? CAP reviewed the proxy statements of 2020 early filers (companies that filed their most recent proxy statement between December 2019 and January 2020) and found that approximately one-third incorporate some type of ESG metric in their executive compensation plan decision-making. The types of metrics varied significantly by industry as not all aspects of ESG will be critical to every organization’s business strategy. For example, carbon emissions may be more material for an energy company than a professional services company. When incorporating ESG factors, most companies in our review applied the metric to their annual incentive plans using a qualitative assessment of the factor. The metric generally reflected a small percentage of the overall weighting (5 percent–15 percent of the total incentive). Companies and boards should discuss the best ways to hold management accountable for ESG progress, including incorporating such progress into incentive plan performance.

Every board and management team should identify which ESG matters are material to their organization and understand how they should be approached and monitored and how to communicate their approach to investors. While the Covid-19 pandemic in 2020 has turned the focus of management on business continuity and crisis management, we expect ESG matters will continue to be prominent factors considered by institutional investors, proxy advisory firms and other stakeholders. It will be important for companies to define the ESG factors that have the greatest impact on their business as transparency and disclosure on how ESG matters are addressed have become increasingly essential parts of shareholder engagement.

The SEC proposed changes to the proxy voting advice and the procedural requirements and resubmission thresholds for shareholder proposals on November 5, 2019. The proposed rules on both topics are in the comment phase for 60 days from publication.

Proposed Changes Around Proxy Voting Advice

SEC stated that the changes are intended “to help ensure that investors who use proxy voting advice receive more accurate, transparent, and complete information on which to make their voting decisions, in a manner that does not impose undue costs or delays that could adversely affect the timely provision of proxy voting advice.” The proposed changes would have the following impact on proxy advisors:

  • Proxy advisors may be required to disclose any conflicts of interest, which will be defined by the SEC
  • Proxy advisors will have to provide issuers with an opportunity to review voting advice based on timing of the proxy statement filing:
    • 45 to 25 days prior to the annual meeting date: at least three business days to review
    • More than 45 days prior to the annual meeting date: at least five business days to review
    • Less than 25 days prior to annual meeting date: not required to provide companies with a review
  • Issuers will be able to request proxy advisors provide a hyperlink in the recommendation to shareholders to a statement by the issuer on their view of the proxy advice

Proposed Changes Around the Procedural Requirements and Resubmission Thresholds for Shareholder Proposals

The changes to the shareholder proposal requirements include a significant increase in the ownership requirements in order to qualify to submit a proposal:

Current ownership qualifications Proposed ownership qualifications
  • $2,000 in stock OR 1% of the company’s stock
  • Ownership for at least one year
  • $25,000 in stock, owned for one year; or
  • $15,000 in stock, owned for two years; or
  • $2,000 in stock, owned for three years

In addition to the new ownership requirements, the SEC also proposed implementing new regulations for the potential resubmission of proposals:

Current proposal resubmission requirements Proposed resubmission requirements
  • Must gain 3% support the following year
  • 6% support gain the year after that
  • 10% gain the year after that
  • Must receive 5% support the first vote
  • 15% support if it has been voted on twice
  • 25% support if voted on more than three times

Finally, a provision to exclude a shareholder proposal from the ballot was also proposed. Proposals can now be excluded from ballots if such proposals meet the following:

  • Voted on three or more times in five years; and
  • Received less than half of the votes; and
  • Declined in support by at least 10% over the previous year

Upcoming Events See All

Nov 04, 2020

Family Business: Transitions Fall 2020

Marina Del Ray, CA

Partners Bertha Masuda and Sue Schroeder will provide guided discussions on how to improve executive compensation programs within family-owned businesses. Click here to learn…
  • Bertha Masuda