Sweeten the Deal: Retention and Transaction Pay
A recent Pearl Meyer study examined 1,200 “Say on Golden Parachute” disclosures revealing how companies may sweeten the pot for key players during change in control events. One ingredient may be retention and transaction bonuses – but compensation committees should consider the entire change-in-control benefit package before adding a bonus plan.
By the numbers: What’s in a Golden Parachute? The lion’s share (76%) comes from unvested equity and severance payments. But 14% of the average change-in-control benefits come from retention and transaction bonuses, representing an important strategic lever. Their analysis found:
23% had a retention only pool
12% had a transaction only pool
4% had both
Why offer these? While unvested equity rewards past loyalty, the company may need to secure a leader through an uncertain future.
Retention bonuses aim to keep critical talent through the transaction period, while transaction bonuses reward key employees for their role in completing the deal.
Transaction bonuses usually follow one of two types:
Deal support bonuses: Typically, cash-based and pegged to a percentage of base salary, these recognize the sweat equity involved in shepherding a deal to the finish line.
Value sharing awards are provided to key senior management for maximizing shareholder value during the transaction.
They are often structured as a percentage of deal value, or flat dollar or fixed number of shares.
Vesting and payment usually occur near the deal closing date.
So, should you use them? Compensation committees eyeing these types of bonuses should consider:
The size of severance and unvested equity already on the table
How these bonus pools impact the total change-in-control costs
How the cost relates to deal size (No surprise, the bigger the deal the bigger the payout).
M&A and Total Rewards. Mergers and acquisitions are also a good time to review your overall total rewards package. A primer from Aon discusses several common risks with reward strategies and offers recommendations for harmonizing your reward programs.
Megan Wolf
Director, Practice, HR Policy Association and Center On Executive Compensation
MORE NEWS STORIES
New HRPA Report: Avoiding the Top 10 CEO Succession Pitfalls
CEO Succession Is the New CHRO Power Skill
