Corporate & Securities Law

"Walk Away" Numbers

By broc

"Walk Away" Numbers

Another gem from Mark Borges' Blog: Following my post last month concerning the difference between the estimated total compensation that an executive will receive when he or she leaves a company (the so-called "walk away" number) and what's required by Item 402(j), I found Ira Kay and Mike Kesner's presentation at the "4th Annual Executive Compensation Conference" (the panel on "Fixing Post-Retirement and Severance Arrangements") to be quite interesting.

As I pointed out, most of the estimated payment and benefit amounts that are being reported in proxy statements only show severance and accelerated equity award numbers. They leave out vested equity awards, SERP's and other retirement benefits, and accumulated deferred compensation amounts (since the rules don't ask for amounts that were payable to a named executive officer whether he or she terminated employment or not).

Ira and Mike presented a couple of helpful charts that demonstrate how the true "walk away" number can be calculated. These charts also can serve as a template for constructing a severance and change-in-control table for purposes of Item 402(j) (as we now know, while tabular disclosure of estimated payments and benefits isn't required under Item 402(j), the Staff has expressed a strong preference for this form of disclosure). So if you're thinking about enhancing this disclosure in 2008, their materials (which are available on CompensationStandards.com) would be a good place to start.

One last point: I've seen a number of compensation committees begin to rethink their severance and change-in-control arrangements (or, at least, the policies that will govern future arrangements) once they've developed an appreciation for the magnitude of the amounts potentially payable to their executives. In this vein, Ira Kay has put together a helpful list of recommendations to consider when restructuring outstanding agreements or updating severance policies that you should consider (for example: adding a "sunset" provision to severance agreements). This can also be found in the materials from his session.

Full post as published by DealLawyers.com Blog on November 28, 2007 (boomark / email).