New York, NY – Leading global professional services firm Alvarez & Marsal (A&M) announces its 2017/2018 Executive Change In Control Report. The report provides context around increasing demands for greater transparency with respect to executive compensation, in particular change in control provisions, and reveals that the overall value of change in control benefits provided to CEOs and other named executive officers (NEOs) are still quite sizeable.
The 2017/2018 Executive Change In Control Report shows that the overall average value of change in control benefits provided to CEOs is $27,871,606 and Other NEOs is $11,113,533 in 2017, which is slightly down from 2015, but represents a slightly higher percentage of the companies’ overall market capitalization (0.23 percent) since 2015. Furthermore, for five recent actual transactions analyzed, the average total change in control benefits for the top five executives exceeded $60 million.
The study also demonstrates that the prevalence of excise tax gross-ups continues to decline in existing agreements with only 14 percent of companies providing this benefit to one or more of their other NEOs in 2017. This is significant as excise tax gross-ups have fallen out of favor with shareholders due to their large costs. However, the survey indicated an uptick in gross-ups being added on the eve of an actual transaction, a practice that receives some push-back but without meaningful consequences.
The report, conducted in collaboration with board intelligence solutions provider Equilar, examined arrangements among the top 200 publicly traded companies in the U.S. This report is the seventh edition since the survey was first conducted in 2006. The 2017/2018 Executive Change In Control Report looks at the 20 largest public companies in 10 different industries based on market capitalization to better understand current pay practices and to analyze their transparency.
Other key findings include:
• The prevalence of double-trigger vesting for equity awards continue to rise; from 2015 to 2017, double trigger vesting has gone from 82 percent to 91 percent. When paired with the popularity of performance-based equity, additional complexity arises on how these equity awards are converted upon an actual transaction, bringing potential consequences under the Golden Parachute tax rules which can levy an additional 20 percent excise tax on executives and prohibit the employer from deducting certain compensation amounts.
• Between 2015 and 2017, there was a 33 percent decrease in gross-ups or modified gross-ups; meanwhile, 90 percent of companies that currently provide a gross-up or modified gross-up state that they will stop doing so in the future.
“In this environment of heightened scrutiny, companies need to be prepared to stand firm behind their numbers,” said Brian Cumberland, Managing Director with Alvarez & Marsal and head of its Compensation and Benefits practice. “Boards and compensation committees do not want to be perceived as providing excessive change in control benefits relative to their peers or offering benefits that conflict with maximizing shareholder value.”
“Executives are often entitled to numerous benefits that can be quite sizeable upon a change in control and/or involuntary termination of their employment,” said Charlie Pontrelli, Project Manager at Equilar. “These change in control benefits may be a point of contention between executives, boards and investors due to their magnitude, so it’s important to gain a solid understanding of how the value of these benefits compares to the market.”
About Alvarez & Marsal
Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) when conventional approaches are not enough to make change and achieve results. Privately held since its founding in 1983, A&M is a leading global professional services firm that provides advisory, business performance improvement and turnaround management services.
With over 3000 people across four continents, we deliver tangible results for corporates, boards, private equity firms, law firms and government agencies facing complex challenges. Our senior leaders, and their teams, help organizations transform operations, catapult growth and accelerate results through decisive action. Comprised of experienced operators, world-class consultants, former regulators and industry authorities, A&M leverages its restructuring heritage to turn change into a strategic business asset, manage risk and unlock value at every stage of growth.
About Alvarez & Marsal Taxand
Alvarez & Marsal Taxand, LLC, an affiliate of Alvarez & Marsal (A&M), a leading global professional services firm, is an independent tax group made up of experienced tax professionals dedicated to providing customized tax advice to clients and investors across a broad range of industries. Its professionals extend A&M’s commitment to offering clients a choice in advisors who are free from audit-based conflicts of interest, and bring an unyielding commitment to delivering responsive client service. A&M Taxand has offices in major metropolitan markets throughout the U.S., and serves the U.K. from its base in London.
Alvarez & Marsal Taxand is a founder of Taxand, the world’s largest independent tax organization, which provides high quality, integrated tax advice worldwide. Taxand professionals, including almost 400 partners and more than 2,000 advisors in nearly 50 countries, grasp both the fine points of tax and the broader strategic implications, helping you mitigate risk, manage your tax burden and drive the performance of your business.
Equilar is the leading provider of board intelligence solutions. Its data-driven platforms, BoardEdge and Insight, provide tools for board recruiting, business development, executive compensation and shareholder engagement. Companies of all sizes, including 70% of the Fortune 500 and institutional investors representing over $15 trillion in assets, rely on Equilar for their most important boardroom decisions. Equilar also hosts industry-leading board education symposiums, conducts comprehensive custom research services and publishes award-winning thought leadership. Founded in 2000, Equilar is cited regularly by Associated Press, Bloomberg, CNBC, The New York Times, The Wall Street Journal and other leading media outlets. Visit www.equilar.com to learn more.
Hannah Arnold, 212-575-4545
Sandra Sokoloff, Director of Global Public Relations
Alvarez & Marsal, 212-763-9853