Community Corner

Findings from a study of change-in-control payments at Fortune 100 companies

 

 

Introduction

Change-in-control arrangements have two key functions: attracting new management talent to a company and motivating existing executives to continue working in shareholders' interests if leadership changes hands. By providing payments upon a change in control, these arrangements seek to relieve executives' potential anxieties about losing their position in the event of a merger or acquisition.

 

 

Change-in-control severance packages have played a prominent role in the national conversation about executive compensation. Shareholder advisory groups are aiming to curb the use of "golden parachute" payments, delineating specific severance arrangements that could be considered "excessive payments" or "problematic pay practices." Targeted change-in-control agreement features included cash multipliers of three times or greater, single- and modified-trigger provisions, and certain bonus definitions used to calculate the change-in-control cash payment.

 

 

In this study, Equilar examines change-in-control arrangements among Fortune 100 companies for fiscal years 2008 and 2010. This report sheds some light on recent trends in corporate-governance reform, which have been bolstered by increased public scrutiny of executive compensation. While the prevalence of change-in-control arrangements has not declined, firms are decreasing payments and instituting restrictive payment triggers related to executive termination.

 

 

The analysis includes information from corporate proxy statements, examining the following topics within change-in-control arrangements:

 

 

  • Change-in-CEO multipliers from 2008 to 2010

  • 2010 multipliers for CEOs and other NEOs

  • Change-in-control cash payment triggers

  • Definition of salary and bonus multipliers

 

 

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Equilar-Change-in-Control-August2011.pdf168.34 KB

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