Time to revisit your CIC agreements.

• Author: Rock, Robert H.
• Position: LETTER FROM THE CHAIRMAN - Change-in-control

THE HEADLINE of a recent Wall Street Journal article suggested: "Want a bonus? Acquire a company." Many CEOs have been rewarded handsomely for growing their companies through acquisition. Given the gargantuan size of some golden parachutes, perhaps a more appropriate headline would read: "Want a really big bonus? Sell your company!"

[ILLUSTRATION OMITTED]

If a CEO wants to get rich fast, selling out is often the way to do it. The typical change-in-control (CIC) agreement provides a CEO with a raft of lucrative payments, which typically include three years of pay and bonus, accelerated vesting of stock options, and enhanced retirement benefits. Some agreements go further, often much further. For example, some contracts provide for three times average annual W-2 compensation (where recent option exercises greatly enhance the CIC payment). The most liberal CIC agreements credit service to age 65, provide a benefit not discounted for age, and continue certain benefits and perquisites such as medical insurance and automobile usage. It is not uncommon for parachute payments to be in the tens of millions of dollars.

For an executive, a golden parachute is a very good severance package. For the shareholder, it provides financial security for top management, enabling them to more objectively negotiate the best deal without giving undue consideration to their own continuing employment. Without a golden parachute, an entrenched management might suppress or even sabotage a buyout proposal.

But CIC arrangements may...