A new study conducted by New York management consultant Alvarez & Marsal found the average value of change in control benefits provided to CEOs decreased to $22,987,661 in 2009 from $38,355,523 in 2007. Similarly, the average value provided to other non-executive officers fell to $7,975,671 in 2009 from $13,191,635 in 2007, according to a press release.
“Scrutiny surrounding executive change in control arrangements – which have historically remained under the radar – has increased dramatically, as a result of new SEC proxy compensation disclosure rules, the Troubled Asset Relief Program, and the growing influence of shareholder activists groups,” said Brian Cumberland, managing director and head of the Compensation and Benefits Practice at Alvarez & Marsal, in the announcement. “In this environment, it has become imperative for companies to carefully assess the arrangements they have in place, validate existing benefits, and ensure they can stand behind their numbers.”
The study also found:
- The number of executives entitled to tax gross-up payments has declined. From 2007-2009, the percentage of CEOs receiving gross-ups has dropped from 66% to 61%, and the number of non-executive officers has slid from 60% to 58%.
- Severance multiples have declined. Fewer officers than in 2007 (52% of CEOs and 26% of other non-executive officers) are entitled to receive cash severance payments equal to three times their annual compensation.
- More than 80% of CEOs and other non-executive officers are still entitled to receive a cash severance payment upon termination in connection with a change in control. The percentage of companies providing at least one executive with an enhancement in retirement benefits remained at 59%. Eighty-six percent of companies still use a single trigger to activate a change in control provision in equity plans (e.g. options, restricted stock, etc.), generally resulting in accelerated vesting.
The study analyzed the 20 largest public companies, based on market capitalization, in ten industries, and drew comparisons with the firm’s 2007 study.
More information is available here.