REDWOOD CITY, CA (November 20, 2017) — Equilar recently provided data and commentary to the newly released 2017/2018 Executive Change In Control Report, which was produced by Alvarez & Marsal Taxand, LLC (A&M Taxand), an affiliate of leading global professional services firm Alvarez & Marsal (A&M). The report provided context around increasing demands for greater transparency with respect to executive compensation, in particular change-in-control provisions—also known as “golden parachutes.” The report revealed that the overall value of change-in-control benefits provided to CEOs and other named executive officers (NEOs) are quite sizeable, despite a small decrease from the previous study.
The 2017/2018 Executive Change In Control Report shows that the overall average value of change-in-control benefits provided to CEOs was $27.9 million and Other NEOs was $11.1 million in 2017, which is slightly down from 2015, but represented a slightly higher percentage of the companies’ overall market capitalization (0.23 percent) since 2015.
Furthermore, for five recent actual transactions analyzed, the average total change-in-control benefits for the top five executives exceeded $60 million.
The study also demonstrated that the prevalence of excise tax gross-ups continues to decline in existing agreements with only 14% of companies providing this benefit to one or more of their other NEOs in 2017. This is significant, as excise tax gross-ups have fallen out of favor with shareholders due to their large costs. However, the survey indicated an uptick in gross-ups being added on the eve of an actual transaction, a practice that receives some push-back but without meaningful consequences. A recent Equilar blog also tackled this subject.
The report examined arrangements among the top 200 publicly traded companies in the U.S. and is the seventh edition since the survey was first conducted in 2006. The 2017/2018 Executive Change In Control Report looked at the 20 largest public companies in 10 different industries based on market capitalization to better understand current pay practices and to analyze their transparency.
Other key findings include:
The prevalence of double-trigger vesting for equity awards continue to rise; from 2015 to 2017, double-trigger vesting has gone from 82% to 91%. When paired with the popularity of performance-based equity, additional complexity arises on how these equity awards are converted upon an actual transaction, bringing potential consequences under the Golden Parachute tax rules which can levy an additional 20% excise tax on executives and prohibit the employer from deducting certain compensation amounts.
Between 2015 and 2017, there was a 33% decrease in gross-ups or modified gross-ups; meanwhile, 90% of companies that currently provide a gross-up or modified gross-up state that they will stop doing so in the future.
“Executives are often entitled to numerous benefits that can be quite sizeable upon a change in control and/or involuntary termination of their employment,” said Charlie Pontrelli, Project Manager on the Equilar Research Services. “These change-in-control benefits may be a point of contention between executives, boards and investors due to their magnitude, so it’s important to gain a solid understanding of how the value of these benefits compares to the market.”
“In this environment of heightened scrutiny, companies need to be prepared to stand firm behind their numbers,” said Brian Cumberland, Managing Director with Alvarez & Marsal Taxand and head of its Compensation and Benefits practice. “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 maximizing shareholder value.”
Equilar is the leading provider of board intelligence solutions. Its data-driven platforms, BoardEdge and Insight, provide tools for board recruiting, business development, executive compensation and shareholder engagement. Companies of all sizes, including 70% of the Fortune 500 and institutional investors representing over $15 trillion in assets, rely on Equilar for their most important boardroom decisions. Equilar also hosts industry-leading board education symposiums, conducts comprehensive custom research services and publishes award-winning thought leadership. Founded in 2000, Equilar is cited regularly by Associated Press, Bloomberg, CNBC, The New York Times, The Wall Street Journal and other leading media outlets. Visit www.equilar.com to learn more.
About Alvarez & Marsal Taxand
Alvarez & Marsal Taxand, LLC, an affiliate of Alvarez & Marsal (A&M), a leading global professional services firm, is an independent tax group made up of experienced tax professionals dedicated to providing customized tax advice to clients and investors across a broad range of industries. Its professionals extend A&M’s commitment to offering clients a choice in advisors who are free from audit-based conflicts of interest, and bring an unyielding commitment to delivering responsive client service. A&M Taxand has offices in major metropolitan markets throughout the U.S., and serves the U.K. from its base in London.
Alvarez & Marsal Taxand is a founder of Taxand, the world’s largest independent tax organization, which provides high quality, integrated tax advice worldwide. Taxand professionals, including almost 400 partners and more than 2,000 advisors in nearly 50 countries, grasp both the fine points of tax and the broader strategic implications, helping you mitigate risk, manage your tax burden and drive the performance of your business. To learn more, visit www.alvarezandmarsal.com or www.taxand.com. Follow A&M on LinkedIn, Facebook and Twitter.
About Alvarez & Marsal
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