75% of the S&P 500 Choose “Best-Net” Taxes for Golden Parachutes

The past decade has seen shareholder pressure reshape "golden parachute" practices, most notably through the rise of "double-trigger" clauses and the decline of excise tax gross-ups. A new report from Meridian delves into the who, what, when and why of change-in-control benefits for executives, analyzing prevailing trends among S&P 500 companies.

Who? Executives involved in identifying and carrying out strategic corporate transactions, such as the C-Suite and other key executives based on their role and risk of job loss as a part of the change.

What? Current practice is to capture change-in-control provisions through standalone plans rather than individual employment contracts. The single policy is preferred because it provides consistent application of benefits and is easier to communicate to impacted individuals.

• Cash severance trends. 78% of companies provide cash severance, almost always based on a multiple of base salary and annual incentive.
  
  
  • A 3x multiplier, once common, has declined from nearly 65% prevalence in 2010 to 49% in 2023 as more companies have adopted a 2x or 2.5x (CEO only) multiplier.
    
    
• Bonuses. Two-thirds of the S&P 500 offer a “stub year” bonus, almost always pro-rated based on target.
  
  
• Equity vesting. Practice varies as to how to vest mid-flight performance shares; 35% use target performance while others use actual performance or even the greater of target or actual.
  
  
• Benefits continuation. Most companies continue benefits for the same period as the cash severance, although some use the 18-month COBRA continuation period for simplicity.

When? 95% of companies define a change in control event as an acquisition of a specific threshold of company stock, a major change in board composition, a specific corporate transaction and/or asset sale.

Why? In dynamic industries undergoing major shifts or consolidation, holding onto key talent and ensuring top executives remain objective are crucial factors for success, especially when navigating corporate transactions that prioritize shareholder value.