June 28, 2018

Checklist: Potential Executive Comp “Deal-Breakers”

Executive compensation can be one of the most sensitive areas to deal with in M&A negotiations.  Mark Poerio has come up with this checklist of executive compensation issues that parties should make sure to address early on in the process, before they become deal-breakers.  Here’s the intro:

Merger and acquisition transactions will seldom break-apart due to issues related to employee benefit plans and executive compensation. But seriously disruptive issues may arise, and are most likely to explode, when overlooked until the last minute. The table below is intended to facilitate the detection, negotiation, and resolution of possible problems. As a general matter, sellers may defuse risks and streamline negotiations through proactive pre-sale planning. On the other hand, buyers are able to maximize their deal-related protections (and their post-closing alternatives) by assuring early stage attention to the items listed below.

The checklist includes a variety of potentially thorny compensation issues, including key employees with the right to resign with full severance upon a change-in-control, the absence of non-compete arrangements with key employees, and out-of-the-money stock options that can’t be unilaterally cancelled by the seller.

John Jenkins