Increased Say-On-Golden Parachute Failure Rate & CEO Golden Parachute Values in 2022

Subodh Mishra, Institutional Shareholder Services writes about the increase in no votes on golden parachutes.

The number of US corporate change-in-control transactions that came to a vote with a golden parachute proposal has remained stable from 2017 to 2022, ranging from 146 to 178 proposals, with the exception of 2020 which had only 87 proposals (undoubtedly due to the start of the COVID pandemic). From 2017 to 2021, median CEO golden parachute values did not significantly fluctuate, ranging between $7.5 million and $8.5 million. The say-on-golden parachute failure rate dropped to a low of 10.3% in 2020 but remained between 11.6% and 14.5% during the rest of that timeframe.

2022 saw a shift in both areas, however. Golden parachute values spiked in 2022, with the median CEO golden parachute up to $12.9 million, a 62% increase over the prior year’s value of $7.9 million. Along with the increase in CEO golden parachute value, the failure rate on say-on-golden parachutes also increased to a six-year high of 15.6%, compared to the prior year’s value of 11.8%. Shareholders appear to be mindful of the total golden parachute magnitude and may be voting against golden parachute proposals on this basis….

ISS recommended votes “against” 34.4% of all golden parachute proposals under U.S. Benchmark Policy in 2022, an increase from 28.7% in 2021. Single-trigger equity acceleration was the most commonly identified concern in recommending against golden parachute proposals that ultimately failed to receive majority support, in both 2021 and 2022. The percentage of all failed votes with single-trigger equity vesting increased significantly year-over-year, from 57.1% in 2021 to 70% in 2022. In each case, single-trigger equity vesting was not the sole concern identified; ISS cited multiple concerns in three-quarters of all failed golden parachute proposals in both 2021 and 2022.

The second most common problematic practice identified by ISS in 2022, at 35% of all failed votes, was the acceleration of unvested performance shares above target levels, without a compelling rationale – i.e., cases where vesting was not based on actual performance and insufficient rationale was disclosed for above-target vesting. Of the seven cases where above-target acceleration of performance shares was cited as problematic in 2022, six of those were in conjunction with single-trigger equity vesting. The 35% of 2022’s failed votes where above-target acceleration of performance shares was cited by ISS represented an increase over 2021, when 28.6% of all failed votes cited this reason. Such above-target vesting, particularly at maximum levels, can significantly elevate overall golden parachute payouts.

U.S. Say-On-Golden Parachute Failure Rate & CEO Golden Parachute Values in 2022

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