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Analysis of executive change in control arrangements of the top 200 companies
Political activists, shareholder advisory services and the media have launched a direct assault on executive compensation. Accordingly, increased attention has been placed on "golden parachutes" and associated "gross-up" payments. To understand current pay practices - and to analyse their transparency - Alvarez & Marsal Taxand USs Compensation and Benefits Practice conducted a study on change in control arrangements among the top 200 publicly-traded companies in the US.
This study is an analysis of the 20 largest companies in 10 different industries, based on market capitalisation. Observations and comparisons have been made between this study and Taxand USs prior 2007 study.
One of the main goals behind the SEC executive compensation disclosure rules is transparency. Therefore, the SEC is requiring companies to quantify any parachute payments the CEO and Other NEOs would receive upon a hypothetical
change in control at year end.
The most common protection is provided in equity plans (94 percent), followed by individual agreements (70 percent) and retirement/deferred compensation plans (51 percent).
81 percent of CEOs and 78 percent of Other NEOs receive some type of change in control protection in individual agreements or company policies.
81 percent of CEOs and 78 percent of Other NEOs receive a cash severance payment in connection with a change
in control. The most common cash severance payment for CEOs is still three (3) times compensation, but the prevalence of this multiple decreased from 62 percent in 2007 to 52 percent in 2009.
Other common change in control benefits include payment of executive legal fees (59 percent), enhancement of retirement benefits (59 percent),and outplacement services (38 percent). No significant changes were observed with regard to these types of benefits from 2007 to 2009.
Gross-ups or Modified Gross-ups provided to CEOs decreased from 66 percent to 61 percent from 2007 to 2009.
Gross-ups or Modified Gross-ups provided to Other NEOs decreased from 60 percent to 58 percent from 2007 to 2009. No significant differences in the prevalence of excise tax protection exist between CEOs and Other NEOs. Industries vary greatly on the specific excise tax protection provided to Other NEOs.
Under the Golden Parachute provisions of the Internal Revenue Code, a payment to an executive exceeding the "safe harbour" limit results in large penalties to both the corporation and key executives.
Download the full analysis and report from Taxand US here: