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Shareholder approval of golden parachutes tied to M&As swells in 2013

More investors give nod to M&A-related executive pay packages despite advice from ISS

Despite different advice from proxy advisers, an increased number of shareholders voted in favor of so-called golden parachutes tied to corporate acquisitions last year.

In 2013, there were 141 votes on executive compensation packages, which were linked to mergers and acquisitions (M&As), of which 86 percent passed, according to figures the Wall Street Journal obtained from FactSet SharkWatch. This number is an increase from 82 percent the prior year on 113 votes.

The voting trend has expanded despite the fact that proxy adviser Institutional Shareholder Services (ISS) has made more negative recommendations on pay perks for executives who sell their companies.

“ISS advised shareholders to vote against 28 percent of golden parachute proposals between February and the end of October, according to compensation consultants Pearl Meyer & Partners,” the Journal reported. “That was a big jump from negative recommendations in 20 percent of all votes held through the end of 2012.”

According to Sullivan & Cromwell LLP, over the past two years, executive compensation enhancements generally did result in negative vote recommendations from ISS: granting new excise tax gross-ups (three out of four deals received negative ISS recommendations); cashing-out severance or converting severance into a retention bonus without an actual termination of employment (five out of eight deals received negative ISS recommendations); and accelerating the vesting of equity awards when the stated performance hurdles were not achieved or were artificially low (five out of six deals received negative ISS recommendations).

Another interesting trend is that golden parachute amounts as a percentage of the target’s equity value tend to increase as deals become smaller. For the largest 25 deals, only two companies reported golden parachute payments that were above two times the average percentage of target equity value.

In contrast, for the 39 deals with enhancements, a meaningful number of companies reported golden parachute payments that were above two times the average (six companies for the CEO, and five companies for the NEOs as a group). 

As shareholders continue to have a bigger say on executive compensation, a recent PwC study found that both directors and investors believe that compensation consultants are “very influential” over board decisions on executive compensation (41 percent and 37 percent, respectively).


For more coverage on executive compensation, check out InsideCounsel’s coverage below:

Three years on: Lessons from ‘say on pay’ shareholder litigation

More CEOs receiving ‘golden hellos’ upon company arrival

Directors, investors in alignment on executive compensation, board performance

Regulatory: Why the SEC’s proposed pay-ratio rule will increase compliance costs

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Erin E. Harrison

Erin E. Harrison is the Editor in Chief of InsideCounsel magazine. Harrison’s professional background includes extensive expertise in both print and online media, highlighted by...

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