Five Essentials of Leading Change-in-Control Practices

A Meridian primer offers a timely reminder: outdated or overly generous change-in-control (CIC) provisions can quickly become a headline. As part of sound governance, Meridian recommends taking a fresh look at existing agreements with a five-point checklist to ensure they remain market-aligned, defensible and in step with investor expectations.

1. Sanity-Check Your Severance Multiples

The traditional 3x base salary + bonus formula for CEOs is no longer the universal benchmark. Today, market data is split—47% of companies still use 3x, while 42% have moved toward 2x–2.5x.

• For NEOs, 2x remains the norm. There are also differences in how bonuses are calculated: while most companies use the target bonus, others are adopting a three-year average bonus lookback to better reflect the value “lost” in a transaction.

2. Double-Trigger or Bust

A double-trigger vesting provision—where equity vests only after both a change in control and a qualifying termination—is the gold standard. Over 90% of the S&P 500 now follows this approach.

• Single-trigger vesting is a red flag for proxy advisors. Meridian recommends reviewing and revising these provisions to reflect investor expectations.

3. Clean Up Your Language

As companies migrate from individual employment agreements to standardized CIC plans, consistency and clarity are key. Ambiguous definitions—particularly around “cause,” “good reason,” and “qualifying termination”—can lead to unintended payouts and legal disputes.

• Conduct a language audit across all agreements and plans to ensure definitions are harmonized and align with broader plan documents.

4. Know Where 280G Gross-Ups Still Lurk

The once-common tax gross-up clause (where companies cover executives’ excise taxes) has all but disappeared. Fewer than 5% of companies still maintain full or modified gross-ups.

• The prevailing approach today is the “best-net” method, which ensures the executive receives the greater of 1) the full CIC payment (with the executive paying their own taxes), or 2) a reduced amount that avoids the excise tax altogether.

5. Be Transparent About Legacy Agreements

If older CIC agreements still contain red-flag provisions, Meridian recommends clear disclosure and a stated plan to phase them out to signal good faith governance.

Want More? Meridian’s full benchmarking survey provides deeper insights into current market practices and how leading companies approach severance policies.