We have reviewed the 365 merger agreements that were announced during the two years after the “Say-on-Golden-Parachute” vote rule went into effect on April 25, 2011 and that were subject to the rule. [1] We found that 39 companies (11% of the total) substantively enhanced executive compensation arrangements in connection with the transactions.
Some of the more common executive compensation enhancements, which generally did not result in negative vote recommendations from Institutional Shareholder Services (“ISS”), were: granting deal closing bonuses (in 17 deals), granting retention bonuses (in 16 deals) and granting additional equity awards that vest on or post-closing (in 13 deals). However, the following executive compensation enhancements generally did result in negative vote recommendations from ISS: granting new excise tax gross-ups (three out of four deals received negative ISS recommendations), cashing-out severance or converting severance into a retention bonus without an actual termination of employment (five out of eight deals received negative ISS recommendations) and accelerating the vesting of equity awards when the stated performance hurdles were not achieved or were artificially low (five out of six deals received negative ISS recommendations).
