Corporate Governance

Rethinking Change-In-Control Benefits

By Fei-Lu Qian

According to a new survey by Mercer, in the last two years, 64% of the 182 companies surveyed by Mercer made changes to their change in control (?CIC?) programs for executives in ?response to shareholder concerns that the programs provide an expensive windfall to executives? when there is a major corporate transaction such as a merger. Traditionally, a company?s CIC program includes cash severance and stock awards which vest over time. However, companies can accelerate the vesting period by simply completing a corporate transaction known as ?single trigger,? regardless of its impact on an executive?s job.

Based on its findings, Mercer found that the majority of the surveyed companies have moved toward a ?double trigger? system. This means that a company?s change in control benefits will be accelerated ?only when the employee has also lost his or her job as a consequence of the corporate transaction.?

?While we expected to see a growing move toward Double Trigger, we were surprised by its magnitude,? said Diane Doubleday, global leader of Mercer?s executive remuneration services.

Mercer?s findings are consistent with an earlier report by Watson Wyatt where 64% of institutional investors believed that change in control agreements were ?unfriendly? to shareholders and recommended the ?double trigger? equity vesting approach.

Full post as published by PomTalk on December 05, 2007 (boomark / email).