Setting performance goals for equity awards can vary in degrees of difficulty depending on the state of market stability and threat of volatility or uncertainty.
As companies and boards execute new annual long-term incentive plan agreements this fall, it’s important to consider whether there are particular types of events (such as corporate transactions, changes in tax or accounting provisions or one-off events such as lawsuits) that the compensation committee would expect to adjust for in the determination of equity plan performance outcomes.
If that is the case, companies should strongly consider drafting explicit language in their equity agreements to describe how and when the performance outcomes would be adjusted. These non-discretionary adjustment provisions will not have any additional ramifications from a corporate reporting perspective.
Boards and companies should also pay special attention to any new proposed provisions, which allow for adjustments to performance condition outcomes under equity plans, to make sure that they are not true discretionary provisions that would trigger greater financial statement volatility.
At Aon, we have a dedicated global equity services team that helps companies and boards navigate through global due diligence, complex long-term incentive design, equity compensation design and expense and discount modelling.
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