CGI Glass Lewis publishes likely response to FY20 incentive outcomes and FY21 arrangements

On 5 August Philip Foo, Director of Research for CGI Glass Lewis in Australia, published a blog describing the proxy adviser’s expectations of companies’ executive incentive outcomes, policies and practices.

This article provides a summary of typical examples under each of the following headings.

COVID-19 devastates a company

This one is simple. Do not expect CGI Glass Lewis support for an incentive payment.

Interestingly, CGI Glass Lewis appears to be open to “innovative”, “retention” frameworks for incentives. In particular, the proxy adviser appears to be open to frameworks that provide forward looking rewards, so long as there is a guard against windfall gains. Reading between the lines it appears that CGI Glass Lewis may support equity grants that are time-vested and not subject to specific performance requirements.

But watch out for windfall gains if the share price has been hammered.

 Company performance moderately impacted by COVID-19

It is unlikely there will be any incentive award If the company’s incentive framework has a financial or TSR gateway. CGI Glass Lewis suggest that discretion to pay one should not be exercised.

If there is no financial or TSR gateway, and non-financials are delivered, CGI Glass Lewis will probably expect a level of negative discretion to be exercised.

Company performance is strong through COVID-19

An incentive is justified.

However, if company performance is a result of COVID-19 tailwinds outside of management’s influence, CGI Glass Lewis suggest some negative discretion may be expected.

Employee lay-offs

If there have been COVID-19 related employee lay-offs, negative discretion may need to be considered for any incentive payments.

FY21 incentives and target setting

If, in response to the uncertainty of future outcomes, a company amends its incentive framework to make payments more certain, CGI Glass Lewis will expect a discount on the incentive value of more than 50% on the assumption that LTIs tend to vest 50% at threshold. Again, although the CGI Glass Lewis’ release is cryptic, it appears to be referring again to time-vested equity grants.

See the CGI Glass Lewis blog HERE.

© Guerdon Associates 2020
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