The Advisors' Blog

Meridian Compensation Partners released its 2021 Study of Executive Severance Arrangements Not Related to a Change in Control, with data from 100 large U.S. public companies. The study examines the following NEO severance arrangements: (i) payment triggers, (ii) cash severance benefits, (iii) stub year annual bonus, (iv) continuation of health care benefits and (v) treatment of long-term incentive awards – but doesn’t incorporate benefits payable to an NEO upon death/disability/retirement or renegotiated benefits upon actual termination.  Here is an excerpt of the key findings:

– 69% of Study Group Companies provided Cash Severance to at least one named executive officer.

– The payment of cash severance is always triggered upon an involuntary termination without “cause” and to a significantly lesser extent upon a voluntary termination for “good reason.”

– 85% of companies determined the amount of cash severance based on a fixed multiple of “pay”.

• Definition of Pay – The majority practice is to define pay as the sum of base salary and bonus (with
  bonus typically defined as current year target bonus).
• Cash Severance Based on a Fixed Multiple of Pay – The dominant severance multiple for CEOs and
  other NEOs was 2.0x (62% and 40% of companies, respectively).

– 61% of companies that maintained executive severance arrangements paid stub-year bonuses on a pro rata basis (typically based on target).

– The most prevalent continuation periods were 24 months (38%) and 12 months (23%) for CEOs, and 18 months (27%) and 12 months (34%) for other NEOs.

Meridian’s survey also shows that the treatment of LTI awards varies by types of awards – and whether the NEO is the CEO. A majority forfeit stock options but fully/partially vests restricted stocks/RSUs upon a qualifying termination.

– Emily Sacks-Wilner