Alvarez & Marsal Executive Change in Control Report Finds Average Payments Remain Substantial
Alvarez & Marsal’s (A&M) compensation and benefits practice issued its 2023/2024 Executive Change in Control Report, aligning with the firm’s continuing goal to help companies navigate and maximize current executive change in control (CIC) arrangements.
In partnership with ESGAUGE, a data mining and analytics firm focusing on disclosure of environmental, social and governance (ESG) practices, A&M’s Executive Change in Control Report provides an annual survey on change in control arrangements among 100 companies in the S&P Composite 1500 Index.
This year’s report highlights “golden parachute payments” made to executives in connection with corporate transactions.
In 2023, the average total of CIC amounts, comprised of accelerated vesting of equity awards, for CEOs and CFOs was approximately 60%.
Key findings from the report include:
The average change in control payments remains substantial, averaging approximately $22.9 million for CEOs and approximately $7.3 million for CFOs.
The most common cash severance multiple in connection with a change in control is between 2.0x and 2.99x compensation, inclusive.
The prevalence of double trigger vesting for equity awards remains high, utilized by 88%of companies surveyed.
Accelerated vesting of equity awards continues to be the most substantial CIC payment, with 63% and 58% of the CIC payments for CEOs and CFOs, respectively.
Best-net provisions continue to be prevalent, appearing in approximately 40% of all CIC arrangements studied and observed in 60% of the top 10 deals during 2022.
“The CIC report helps companies evaluate their practices against their peers,” Brian Cumberland, managing director and restructuring compensation practice leader at A&M, said. “The report’s transparent and regularly updated executive compensation information furthers our ability to maximize value, while minimizing risk, for clients.”
The report also cites:
Energy industry CEOs received the largest severance multiples, with 83% of companies providing a multiple of three times.
64% of CEOs and 61% of CFOs receive an extension of health and welfare benefits upon termination of employment in connection with a CIC.
Gross-ups continue to be phased out, with only 4% of CFOs entitled to this benefit in 2023.
“The report creates a greater understanding of the structure and quantum of change in control arrangements and their impact on executive compensation packages,” J.D. Ivy, managing director and co-leader of the compensation and benefits practice at A&M, said. “Understanding the competitive landscape of change in control benefits provides boards and compensation committees with information to make informed decisions.”
“The report underscores the importance of designing compensation programs with the potential impact of the golden parachute rules in mind along with monitoring golden parachute payments to avoid substantial excise taxes and lost deductions,” Allison Hoeinghaus, managing director with the compensation and benefits practice at Alvarez & Marsal Tax, said. “Helping clients understand the impact of these rules aligns with A&M’s value creation orientation.”