March 16, 2021
CIC Arrangements Study: Cash Severance Multiples Trend Down
– Lynn Jokela
During proxy season, one disclosure topic that some follow relates to potential payments upon termination or change in control. Earlier this year, Meridian Compensation Partners issued its 2020 study of executive change-in-control (CIC) practices at large companies. The study examined practices at 200 companies that were components of the S&P 500 index as of December 2019 and it examines the prevalence of certain severance benefits payable to NEOs in connection with a CIC and the types of qualifying events that trigger a CIC payment. This excerpt from the study’s executive summary provides high-level findings about practices relating to size of cash severance CIC-related benefits:
Nearly all companies determine cash severance based on a multiple of the sum of an NEO’s base salary and “annual bonus”, with annual bonus defined as “target bonus” by a slight majority of companies (56%).
Cash severance multiples are trending down for all NEOs.
― For CEOs, a 3× cash severance multiple remains the majority practice, but a 2× multiple is growing in prevalence.
― For all NEOs (other than the CEO), a 2× cash severance multiple is the majority practice
The executive summary also provides an overview about the prevalence of CIC -related cash severance, how companies define “double-trigger” events, other CIC-related benefits like heath care and perquisites, vesting and payout of equity awards and key administrative provisions.