Navigating Executive Compensation In M&A

Many legal and financial challenges related to executive compensation can arise from leadership transitions during mergers and acquisitions (M&A). Companies must decide how to treat equity incentives, navigate complex tax implications and manage employment law considerations.

Here are five key factors to consider when handling executive compensation in M&A transactions:

1. Stock Option Taxation. If properly structured, the optionholder's tax obligations will be deferred until the options are exercised or otherwise settled. The optionholder may also claim a tax deduction of up to 50% on the option benefit if certain requirements are met. However, material changes to Canada's tax deduction rules in 2021 and proposed harmonization with the new capital gains tax rules may complicate the available deduction (if any). Companies should consider these rules on grant, settlement and, where applicable, exchange of options.