LAKE FOREST, Ill.--(BUSINESS WIRE)--Meridian Compensation Partners, a leading executive compensation and corporate governance consulting firm, has completed a comprehensive Study on executive severance arrangements (not related to a change in control) maintained by a cross-section of 160 S&P 500® companies (“Study Group”).
Key Findings of the Study
The following key findings are based on disclosures made by Study Group companies in their respective 2018 proxies covering fiscal year 2017 severance practices.
Executive Severance Arrangements
In 2017, 65% of Study Group companies reported maintaining severance arrangements that provide cash severance benefits for NEOs.
Payment Triggers
Cash severance is always triggered upon an involuntary termination without “cause” and is half as likely to be triggered upon a voluntary termination for “good reason” (both are referred to as “qualifying terminations”).
Determination of Cash Severance
In 2017, 76% of companies determine the amount of cash severance based on a fixed multiple of “pay.” Discussed below are further findings regarding cash severance based on a fixed multiple of pay.
-
Severance Multiples
- For CEOs, 61% of companies determine cash severance based on a 2× multiple.
- For other NEOs, 42% of companies determine cash severance based on a 2× multiple and 40% determine cash severance based on a 1× multiple. -
Definition of Pay
- The majority practice is to define pay as the sum of base salary and bonus (with bonus typically defined as current year target bonus).
-
Severance Formulas
- For CEOs, the most prevalent severance formula (46%) used to determine the amount of cash severance benefits is 2× the sum of base salary and bonus.
- For other NEOs, the most prevalent severance formulas used to determine the amount of cash severance benefits are 2× the sum of base salary and bonus (32%) and 1× base salary (23%).
Vesting and Settlement of Long-Term Incentive Awards
Treatment of long-term incentive awards upon a qualifying termination varies by type of award.
- A majority of the Study Group companies (63%) forfeit non-vested stock
options upon a qualifying termination.
- In contrast, one-half of
the Study Group fully or partially vest restricted stock/restricted
stock units upon a qualifying termination.
- For performance
shares, market practice is roughly split among the Study Group between
forfeiture (49%) and full or partial vesting upon a qualifying
termination (46%).
For a copy of Meridian’s 2018 Study on Executive Severance Arrangements Not Related to a Change in Control, please contact Donald Kalfen.
About Meridian Compensation Partners
Meridian Compensation Partners is a leader in charting the course for executive compensation and corporate governance success. With over seventy associates in ten offices in the U.S. and Canada, Meridian provides executive compensation consulting and corporate governance services to over 600 major publicly traded and privately held corporations. Core services include: board level advisory services, compensation program design, research and competitive market intelligence on executive pay, and corporate governance matters. For more information please visit www.meridiancp.com.
