Nearly all companies (93%) accelerate unvested equity awards in the event of a change-in-control, and only 70% require a "double trigger" for equity acceleration, compared to 98% requiring a double trigger for cash severance payout, according to a new Frederic W. Cook study on severance and change-in-control practices. The survey, which examined severance and change-in-control provisions for CEOs and CFOs of 100 large cap and 100 mid-cap companies, found that over 80% of companies had a governing severance policy with regard to terminations after a change-in-control while about 65% had severance provisions for termination not related to a change-in-control.
Other highlights of the survey include:
- Cash Severance. About 80% of companies provide cash severance in a change-in-control, with fewer (62%) providing it for other qualifying terminations. Of those providing cash in CIC terminations 80% calculate the multiples based on salary and bonus. Cash multiples are higher in the event of a change-in-control, with 50% of CEOs receiving a multiple of 3x, versus non change-in-control terminations, where 52% of CEOs receive a multiple of 2x - 2.99x.
- Equity Acceleration. Time-based awards such as stock options and restricted stock are commonly accelerated in a change-in-control (90%) but the majority of companies cancel them in other terminations. The vast majority of companies also accelerate performance awards in a change-in-control, with about 69% accelerating the full amount and 26% accelerating a pro-rated amount; in other qualifying terminations, only 13% of companies allow full vesting and 34% allow pro-rata vesting.
- Excise Tax Gross-up. Following the trend over the past several years, 94% of large-cap companies now do not provide any excise tax gross-up, with about 25% following a "best net benefit" approach where the company may cut back benefits to the safe harbor level if it is beneficial to the executive (who would otherwise have to pay the excise tax).
- Health & Welfare Benefits. About two thirds of companies provide health and welfare benefits for termination after a change-in-control, while nearly half (47%) provide them in other qualifying terminations.