The Advisors' Blog

Even though “golden parachute” votes are a one-time advisory vote and arguably inconsequential, shareholders are still taking the opportunity to express displeasure with outsized arrangements – and they’re doing so more often. This memo from Compensation Advisory Partners says there may be a reason for the surviving entity to care about the structure, but we’re still in “wait & see” mode:

Beginning with the 2021 proxy season, Glass Lewis stated that they may recommend against the next say on pay vote or compensation committee members of the acquirer if an excise tax gross-up is introduced. To-date, we have not seen many shareholders vote against say on pay proposals of the surviving entity.

According to recent ISS research, the golden parachute vote failure rate rose to 15.6% in 2022 – a big jump from the failure rate that ranged from 10.3 – 14.5% for the preceding 6 years. The research also shows that the higher failure rate is correlated with higher golden parachute values. Here are a few key takeaways:

– The median CEO golden parachute value also increased significantly, from $7.9 million in 2021 to $12.9 million in 2022.

– Median total golden parachute values for failed proposals were considerably higher than passing proposals.

– Equity values represented a higher proportion of total CEO parachute values for failed golden parachute proposals at 63.4% of total payment in 2022 compared to 52.9% in 2021.

The ISS write-up dives into the numbers, as well as problematic equity acceleration and other problematic practices that could lead to adverse voting recommendations (and may be a contributing factor to the overall higher failure rate). Here’s ISS’s conclusion:

The 2022 spike in the median CEO golden parachute value coincided with an increase in the say-on-golden parachute failure rate. The magnitude of golden parachute payments appears to be a significant factor in many investors’ voting decisions, further highlighted by the stark difference in median golden parachute values between failed and passing proposals.

For failed proposals in 2022, the average value of cash-based payments declined while equity values represented a higher proportion of total CEO parachute payments compared to 2021, and problematic equity acceleration emerged as a more prevalent concern. Concerns identified in 2022 point to potential issues with single trigger acceleration, coupled in some cases with above-target acceleration of performance shares; in other words, the conditions in which CEOs would receive a significant portion of their golden parachute payments – on a single-trigger basis with potentially enhanced amounts – likely played a role in the increase in the say-on-golden parachute failure rate in 2022.

The treatment of equity in severance packages, coupled with increasing magnitude, remains an area of significant concern for many shareholders and that ISS will continue to monitor.

– Liz Dunshee