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Executive Change in Control Report 2011 / 2012: Findings

USA

Political activists, shareholder advisory services and the media continue to put pressure on executive compensation. Accordingly, increased attention has been placed on "golden parachutes" and the associated "gross-up" payments for excise taxes imposed as a result of Internal Revenue Code Section 280G. Taxand US completed the 2011 / 2012 Executive Change in Control Report which analyses the change in control agreements of the top 200 publicly traded companies in the US.

Some key findings from the study include:

  • The average value of change in control benefits provided to CEOs increased to $30,263,141 in 2011 from $22,987,661 in 2009. Similarly, the average value provided to other named executive officers increased to $10,822,114 in 2011 from $7,975,671 in 2009. These increases were primarily due to the increase in long-term incentive values.
  • The number of executives entitled to excise tax gross-up payments, under which the company makes the executive "whole" on an after-tax basis by covering any imposed excise taxes, has declined significantly. From 2009 to 2011, the percentage of CEOs receiving excise tax gross-ups has dropped from 61 percent to 49 percent and the number of other named executive officers receiving this benefit has declined from 58 percent to 47 percent. In addition, a substantial number of companies have disclosed their intention to eliminate excise tax gross-ups in the near future.
  • The use of double trigger vesting (change in control and termination of employment) in equity plans has increased considerably. In 2011, 53 percent of companies have at least one (1) equity plan that uses a double trigger compared to 28 percent in 2009

Taxand US discusses the findings in greater detail in the full Report

Taxand's Take


Creating greater transparency around change in control arrangements can be a positive step for companies if they have the data needed to perform a comparative analysis. Companies need to be prepared to stand behind their numbers. Benchmarking existing plans against other companies will help validate existing benefits or expose opportunities to adjust change in control arrangements. Boards and compensation committees do not want to be perceived as providing excessive change in control benefits relative to their peers or offering benefits that conflict with maximising shareholder value.

Your Taxand contacts for further queries are:
Brian L. Cumberland
T. +1 214 438 1013
E. bcumberland@alvarezandmarsal.com

J.D. Ivy
T. +1 214 438 1028
E. jivy@alvarezandmarsal.com

 

 

Taxand's Take Author