Human Capital & Careers

Companies Raise the Bar for Golden Parachutes

Few firms remain that pay severance to executives only upon a change in control; a termination of employment is also now a standard requirement.
Matthew HellerJune 10, 2015
Companies Raise the Bar for Golden Parachutes

Amid growing pressure from shareholders, it’s taking more to trigger a golden parachute payment to an executive, a new Towers Watson report has found.

ParchuteAccording to the consulting firm, some 95% of the 340 Fortune 500 companies that offer severance upon a change in control now also require a corresponding involuntary termination of employment before they make a golden parachute payment. The prevalence of these “double-trigger” requirements has risen 10 percentage points for CEOs and 11  points for other named executive officers since 2010.

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The involuntary termination must take place within a specific length of time, typically two years following the change in control, and single triggers have all but been eliminated, Towers Watson said.

Golden parachutes “are still very much a part of the executive compensation landscape,” the report says, but “companies will continue to balance the need to [incentivize] executives to act in the company’s interest in pursuing attractive merger opportunities with the need to be responsive to shareholders and minimize unwarranted severance costs.”

In another indication that companies are reacting to shareholder concerns over executive pay, the report found that the severance multiples used to determine cash payouts have decreased since 2010.

As of 2014, 36% of CEOs received a three-times multiple, down from 67% in 2010, while 26% of CEOs received a two-times multiple, up from 15% over the same period. For other top executives, 26% received a three-times multiple in 2014, down from 37% in 2010, while 49% received a two-times multiple, up from 27%.

Only one Fortune 500 company still has a single trigger, Towers Watson said, and the modified single trigger, which allows executives a window to terminate their own employment, “has faced continuing shareholder opposition because it puts the executive in control of the severance payout.”

The median golden parachute payment made to outgoing CEOs at the 25 Fortune 500 companies affected by mergers since 2012 was $24 million, which represented about 0.2% of the total deal value at the median.