The Advisors' Blog

Severance provisions continue to draw scrutiny from investors and proxy advisors, and severance has been the subject of a trending shareholder proposal two years in a row. With this focused attention, you may want to look at the latest edition of Alvarez & Marsal’s study (partnered with ESGAUGE) on change-in-control arrangements among 100 companies in the S&P Composite 1500 Index. This summary highlights these key data points:

– The most common cash CIC severance multiple is >2 and <3 times compensation (typically base plus bonus).
– Double-trigger accelerated vesting of equity remains a common CIC benefit (88%).
– Companies routinely provide other CIC benefits, including health and welfare benefits continuation (63%), outplacement services (22%) and enhancement of retirement benefits (15%).
– Excise tax protection is handled in a variety of ways, with most companies either not addressing (executives are solely responsible) (45%) or including a best-net provision (41%).

The complete report shares detailed data by market cap on the topics above for CEOs & CFOs. If you’re taking a look at your severance and CIC benefits and making changes, you may want to consider the impact of the Dodd-Frank clawback rules — for example, ensuring any severance agreements provide a contractual basis to enforce the company’s clawback policy and considering whether severance should be based on base plus target bonus (if you currently use actual).

– Meredith Ervine