January 19, 2021
Economic Challenges: May be Time to Revisit Change in Control Provisions
– Lynn Jokela
Looking back at 2020, compensation committees ended up addressing a lot of issues resulting from Covid-19. As the economic effects continue, a recent Ogletree Deakins memo lists 5 key executive compensation trends and issues for 2021. The list can serve as a reminder about issues to consider when making decisions about executive compensation and 2021 changes and covers clawbacks and “cause” definitions, temporary salary reductions, 2020 performance awards, 2021 incentive compensation and change in control and severance agreements.
With respect to change in control and severance arrangements, the memo suggests this could be particularly important for companies that may be dealing with financial challenges:
Due to financial challenges, a number of companies are facing difficult restructuring decisions. In addition, many financial buyers and competitors have not abandoned their strategic business plans and may initiate acquisitions of companies that are temporarily undervalued in the COVID-19-disrupted economic environment. Accordingly, companies may want to review existing change in control or severance arrangements or implement new arrangements. With respect to severance arrangements, it is important to consider whether they are subject to the ERISA and Internal Revenue Code Section 409A, and, depending on how post-termination health benefits are provided, determine any continuing health benefits compliance issues under the COBRA. Companies should consider reviewing change in control arrangements to ensure leadership continues to be focused on the company’s business and is protected in the event of an unexpected or unwanted transaction.