While change in control (CIC) arrangements face increased scrutiny from regulators, shareholder activists and others, additional strategic reasons exist for management and compensation committees to provide and benchmark executive parachute payments.
The purpose of CIC arrangements is to ensure that executives view every opportunity, including an acquisition, with an eye toward maximizing shareholder value without considering how such an event will affect their personal circumstances. By addressing CIC provisions in executive compensation packages, boards can be assured that executives will be more likely to approach the intricacies of negotiation without the distraction of personal considerations.
Compensation committees need to utilize parachute payment arrangements as a tool to attract qualified candidates and to reward top performers for the successful results of their strategies.
Shareholders have increased concerns regarding corporate governance. By bench-marking and evaluating executive CIC arrangements, boards and their compensation committees can demonstrate accountability to both shareholders and regulators.