The Advisors' Blog

On TheCorporateCounsel.net, I recently blogged about this Semler Brossy article that addresses four common scenarios in CEO transitions. That blog discussed the prevalence of each scenario among S&P 500 companies in 2022 and 2023. The Semler Brossy article also delves into the pay implications of each scenario.

When the outgoing CEO transitions to an executive chair role: Executive chairs often see a reduction in cash compensation (base and bonus) following transition — often in the range of 50%. Eligibility for, and the design of, future equity grants varies considerably with timeline and role. Roles with a longer runway and more substantive responsibilities will often receive additional equity awards. In either case, continued service generally allows for continued vesting of prior grants received as CEO and, in select cases, other ancillary benefits or perquisites (e.g., office space and administrative assistant).

When the outgoing CEO transitions to a senior advisor role: Pay is typically structured as a consulting agreement with either a defined hourly, weekly or monthly rate payable in cash. Eligibility for an annual bonus or future long-term incentive grants is very rare, but continuous service typically allows for continued vesting of prior grants received as CEO.

When the outgoing CEO transitions to a board member: Compensation for the transitioning CEO will almost universally follow the standard program for board pay during the individual’s tenure and, again, offers the opportunity for continued vesting in outstanding equity awards.

When the outgoing CEO has no continuing affiliation with the company: Such transitions often lack future pay considerations and require careful messaging to shareholders to avoid misinterpretation.

– Meredith Ervine