Should They Stay Or Should They Go? Executives In M&A

Executive compensation arrangements in the context of M&A transactions are receiving more attention from investors, management teams and boards, and are increasingly subject to public scrutiny.

Consider the recent example involving Chubb Corp., where its shareholders voted overwhelmingly in favour of its proposed merger with Ace Ltd. but voted over 60% against the non-binding advisory vote on the company's executive pay package. As a result, compensation arrangements are evolving from being primarily focused on severance to being focused on retention and the long-term best interests of the company.

Single-Trigger to Double-Trigger

To the delight of proxy advisory firms and institutional investors, a large proportion of public issuers have amended their long-term incentive plans and severance arrangements in recent years to provide for "double-trigger" change-of-control provisions (see Figure 1). Rather than severance payments and accelerated vesting of equity