Survey Data re Severance Benefits
2020.01.27 Survey Data - From Severance to Other Forms of Executive Comp. Not surprisingly, between 2x and 3x pay is the range for CEO severance in just over 80% of the top 200 public companies. Likewise, those multiples apply in 84% of the surveyed companies to a CEO's base plus bonus. How widespread is accelerated vesting of equity awards? And how do CFOs fare in comparison to CFOs. Data about these and other severance-related practices appear in this 20+ page report from Alvarez & Marsal. See generally Topical Index for Executive Comp. Survey Data.
2019.07.21 "More Organizations Are Expanding Severance Benefits, Survey Finds" from SHRM includes this helpful data for broad-based severance plans:
- "Forty-four percent of 1,500 HR professionals polled by career transition services firm RiseSmart said their organizations offer severance benefits to all workers—not just executives and senior managers—representing a 6 percent increase from 2017."
- 30% of respondents offer 1-3 months of severance.
- 25% offer 6-12 months
- 21% offer 3-6 months.
- 12% offer less than one month
- 12% offer one year or more
2018.11.12 "2018 STUDY OF EXECUTIVE SEVERANCE ARRANGEMENTS NOT RELATED TO A CHANGE IN CONTROL" by Meridian Compensation Partners, provides extensive publicly-available survey data, as indicated by the table of contents quoted here from the report:
Executive Severance Benefits
■ Executive Severance Arrangements – 10
■ Payment Triggers for Cash Severance Benefits – 11
■ Cash Severance Benefits – 12
■ Treatment of Long-Term Incentive Awards – 14
■ Key Trends in Executive Severance Arrangements – 17
Key Administrative Provisions
■ Release and Waiver of Claims – 21
■ Restrictive Covenants – 21
2016.04 Executive Severance and Change in Control Practices. See this Frederic W. Cook survey for 17 pages of excellent data about severance pay structures - both in connection with a change in control (CIC) and apart from a CIC. Here are a few representative findings to consider - quoted here from the survey:
- Multiple: Of those companies providing cash severance, the most common multiples for non-CIC terminations are 2x to 2.99x for the CEO (52%) and 1x to 1.99x for the CFO (66%). In the event of a CIC, however, the multiples tend to increase: 40% of CEOs receive a cash multiple of 2x to 2.99x and approximately 50% receive 3x. For CFOs, 51% receive 2x to 2.99x and approximately 18% receive 3x.
- Time-Based Awards – CIC: Approximately 90% of companies fully accelerate unvested stock options and restricted stock awards in the case of a CIC (and a qualifying termination event, where applicable).
- Excise Tax Gross-Up: Approximately 85% of mid-cap companies and 94% of large-cap companies do not provide an Internal Revenue Code Section 280G excise tax gross-up of any kind.
2015.Oct.08 Change in Control Benefits - Enhanced Below NEO Level. This Towers Watson survey of 137 North American companies reports, for example, that in the event of a change in corporate control --
- 67% offer cash severance plus accelerated vesting of equity awards to employees below the named executive officer level, and
- 40% offer enhanced severance to employees below the senior vice president level.
- "The survey results highlight an important point: severance can be a very powerful and potentially less expensive tool (as compared to cash retention programs) for retaining a broad group of employees during times of uncertainty."
2015.June Change in Control Benefits. This Hay Report provides the following summary survey finding for executive-level severance (quoting from the report):
- Two times base salary [and bonus] was the most common multiple (and the median as well), followed by one- and three-year salary multiples (which were significantly less common).
- With respect to a CIC, companies tend to use pay multiples that are larger than for general severance events. Three times base salary (49.2 percent of companies) was the most common. Further, CIC severance multiples including the CEO’s bonus were disclosed by 186 companies; three times bonus was the most common (49.7 percent of companies).
- While our research did not specifically focus on CIC pay multiples for executives other than CEOs, we observed that multiples for non-CEO executives typically were lower than for the CEO. These other executives often received one to two times salary plus bonus, in some cases depending on whether an individual is a named executive officer.
2015.Feb Change in Control Benefits - Tech & Life Sciences. This Radford "Getting it Right" Survey of 240 public and private companies provides separate date for broad-based employee severance plans, as well as those limited to executive officers. The findings for the latter group include the following (quoting from the report):
- Double trigger requirements for change-in-control agreements are on the rise. Nearly 75% of companies that offer CIC severance coverage to executives now require an employee to be terminated in order to receive change-in-control benefits.
- Most companies provide a protection period of a year under a double trigger change-in-control event. CEOs, NEOs and vice presidents typically receive CIC coverage for any termination occurring within 12 months of a change-in-control event.
- CEO base salary and benefits continuation packages typically range from 12 to 24 months in value for both CIC coverage and not-for-cause severance. For NEOs and vice presidents, that range is typically six to 12 months in length, on average.
- Companies are divided over the use of equity acceleration. Around 31% of companies accelerate CEO and NEO equity for not-for-cause severance. However, only 17% do so for the vice president level. Equity acceleration is more popular in connection with change-in-control events, where 65% of companies provide this benefit (about 20% of this group is single trigger).
2014.Nov Severance Benefits - Broad Study. This World at Work survey of 589 companies provides comprehensive data about broad-based employee severance plans, as well as those limited to executive officers. The findings for the executive group include the following:
- Over 50% of companies provide executives with 12-24 months of change in control severance benefits;
- From 2005 to 2014, there has been a dramatic shift from single trigger to double trigger conditions for severance.
2013/2014 Executive Severance and CEO. Here are a few highlights of this well presented "Executive Change in Control Report" by Alvarez & Marsal, drawn from data fort he 20 largest companies (by market cap) in 10 different industry classifications (quoting from the report):
- The most common cash severance multiple for CEOs is between two (2) and three (3) times compensation (43 percent). The prevalence of a three (3) times multiple has fallen to 42 percent in 2013 from 51 percent in 2011.
- 77 percent of Other NEOs are entitled to receive a cash severance payment in connection with a change in control. . . . The most common cash severance payment provided is between two (2) and three (3) times compensation and the average multiple is 2.19 times. 60 percent of companies with cash severance payments provide a severance benefit between two (2) and three (3) times compensation, while 16 percent provide three (3) times compensation.
2013.Sept. Healthcare CEO - Severance Survey. Here are a few highlights of this well presented study by Mercer et al, drawn from 186 health care organizations:
- 83% provide their CEOs with severance through individual agreements.
- 65% provide change-in-control benefits; 29% for nonrenewal.
- 88% determine benefits over a period of 12-24 months (49% at 24; 14% at 18; 25% at 12).
- 73% base severance on salary alone; 18% use salary and bonus.
- 68% require noncompetes -- with 62% of noncompetes for 2 years; 34% are for less.
2011.June.24 Value of "Golden Parachute" Payments Increased by 32 Percent in Past Two Years -- Study by Alvarez & Marsal. Key findings quoted here from the report:
- The average change in control benefit provided to CEOs has increased 32 percent over the past two years, rising to $30.2 million in 2011 from $22.9 million in 2009.
- 80% of companies that provide excise tax gross-ups in the information technology industry have publicly disclosed their intention to phase out or eliminate excise tax gross-ups in the future, compared to only 29% of financial services companies.
20 11.March.14 "Contractual Versus Actual Severance Pay Following CEO Turnover" reports that "about 40% of S&P500 CEOs who leave their firm receive separation payments that are in excess of what the firm is legally required to give them based on their existing contract. Furthermore, we find that the average discretionary separation pay is around $8 million - close to 242% of a CEO’s annual compensation." ... Further, "We hypothesize that in cases when the CEO departure is voluntary, discretionary separation pay represents a governance problem."
2010.Aug.3 Severance Relative to Employer's Market Cap. See Exequity Report:
- "Exequity compiled CIC-related termination benefit values for 500 companies covering a wide spectrum of industries, company size, and Fortune 1000 rankings."
- "Median CIC benefit values for CEOs range from 0.07% of market cap for the largest companies with over $50B in revenue to 0.61% of market cap for smaller firms ($0.5B to $1B in revenue)."
- "CIC benefits for the NEO group, including the CEO, range from 0.16% of market cap for large firms to 1.44% for smaller companies."
- "Independent of company revenue, CEO CIC benefits are between approximately 40% and 45% of the total CIC cost for the top five, or an internal equity ratio of approximately 2.7 to 3.3 between the CEO CIC benefits and those for an ―average‖ NEO below the CEO.