Equilar’s analysis of 2006 Fortune 200 CEO severance and change-in-control packages found 71.5% of CEOs are in line to receive severance payments if their employment is terminated without good reason or without cause. Total severance payouts are calculated as the aggregate of lump-sum cash payments, the value of accelerated equity, accelerated or continued benefits (including retirement plans and deferred compensation), and tax gross-up payments.
Broken down by payout element, the analysis revealed a median cash payment of $6.3 million, a median equity payout of $17.4 million, and a median $1.2 million payout in other benefits. The median value of tax gross-up payments was not included as this element of severance payout packages only appeared for 4.4% of executives from the 137 companies for which disclosure fillings were analyzed.
According to the disclosures, 81.8% of CEOs can expect a change-in-control payment if their employment is terminated following a change in control of their company. Equilar’s analysis said the median potential payout, as estimated by each company, is approximately $28.6 million.
Broken down by payout element, the analysis found median values of $9.9 million in cash, $16.5 million in equity, $2.2 million in other benefits, and $7.5 million in tax gross-up payments.
Complying with SEC Disclosure Rules
New rules for disclosure of executive pay packages put forth by the SEC in 2005 went into effect in December 2006 (See New Executive Compensation Disclosure Rules Take Effect ).
Equilar’s review of early filers under the new compensation disclosure rules shows that companies have adopted a number of methods for displaying post-employment information, including:
- Narrative discussions of the treatment of various compensation elements under applicable termination scenarios with a focus on how specific company plans will be affected,
- Tables/Matrices outlining the treatment of various compensation elements under applicable termination scenarios with a focus on how specific company plans will be affected, and
- Individual tables quantifying the details of various post-employment payouts for executive officers.
Links to disclosures demonstrating each of these methods are included in the Equilar analysis which can be accessed via http://equilar.com .