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The totality of change-in-control payments

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  • Offenberg, David
  • Officer, Micah S.

Abstract

Most extant studies consider golden parachutes as the totality of change-in-control payments. However, for the median CEO of firms listed in the S&P SmallCap 600 index in 2009, golden parachute payments are only 46% of total change-in-control compensation. We measure total change-in-control payments using newly available data for this sample. Our results show that the total payments to the departing CEO are estimated at 1.1% of market value (on average). We also show that newly earned compensation (as opposed to accelerated vesting of lagged incentive pay) makes up approximately half of total change-in-control payments for the median CEO, and these two components of severance pay are positively correlated (contrary to existing theory). Furthermore, change-in-control payments do not appear to impede takeover offers or affect takeover premiums. Total change-in-control payments are small on average, and boards seem to take care in negotiating these terms with incumbent CEOs so that change-in-control payments do not adversely affect the firm's prospects in the takeover market.

Suggested Citation

  • Offenberg, David & Officer, Micah S., 2014. "The totality of change-in-control payments," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 75-87.
    • Handle: RePEc:eee:corfin:v:29:y:2014:i:c:p:75-87
    DOI: 10.1016/j.jcorpfin.2014.07.001
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    More about this item

    Keywords

    Golden parachute; Change-in-control; Accelerated vesting; Executive compensation; Acquisitions;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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