November 9, 2015

Survey: Vast Majority Provide Enhanced Severance Benefits Below NEO Level in Change-in-Control

Here’s the key findings excerpted from this blog by Towers Watson about a recent change-in-control survey:

The survey responses suggest that enhancing severance for terminations in conjunction with a CIC is widespread. The vast majority (93%) of respondents indicated they do so for some portion of employees below the NEO level, with two-thirds (67%) of those companies offering enhanced cash compensation (salary and/or bonus) and accelerated vesting of equity and about a quarter (26%) offering only accelerated vesting of equity (see Figure 1).

Other key findings include the following:

– Many (40%) of those companies that provide enhanced cash compensation include employees below the senior vice president (SVP) level. And about half of companies that provide enhanced cash compensation do so for all employees at a given level, while half provide it selectively.
– The percentage of companies offering a flat severance amount irrespective of tenure versus those offering a tenure-based benefit is significantly higher for CIC severance than for other types of severance. For example, 61% of companies provide executive vice presidents (EVPs)/SVPs a flat severance benefit in the absence of a CIC, while 96% offer a flat benefit following a CIC. Employees below the EVP/SVP level see an increase in the percentage receiving a flat amount of severance, but neither the magnitude of increase nor the percentage receiving a flat amount are as high as for EVPs/SVPs.
– Those that switch from tenure-based to a flat amount in a CIC provide more severance as a result of the switch at most tenure levels.
– Of those that maintain tenure-based severance in a CIC, median minimum benefits are higher in a CIC situation than in a normal severance situation at all levels to guarantee a certain level of benefit for more recently hired employees. Of those that provide flat severance with or without a CIC, median benefits are one-third to one-half higher following a CIC at all levels.
– Treatment of bonuses for the year of termination is enhanced following a CIC in about half the respondents for EVP/SVPs and in a quarter to a third of the companies for employees at lower levels. The most common treatment is to pay at least full target bonus regardless of performance or portion of the year worked. The most common treatment of bonuses in normal severance situations is to pay a bonus prorated for the part of the year worked.
– The most prevalent treatment of both time-based and performance-based equity awards is accelerated vesting for those who are terminated following a CIC (i.e., double-trigger vesting).