Aug 8, 2018
The compensation of company executives in M&A transactions has evolved as shareholder expectations grow, according to an article in Canadian Lawyer Magazine. In her article, author Elizabeth Raymer examines how executive compensation in the context of M&A deals has become more scrutinized than ever. The article also explains how the type of transaction (for example, public or private) can impact compensation structures. Lynne Lacoursière, Co-Chair of Osler’s Executive Compensation Group, explains.
Compensation “gets focused on early on in the transaction,” Lynne tells Canadian Lawyer Magazine. She adds that it begins with developing a good understanding of the equity awards, “so you understand what’s at stake for the executive team.” She says that negotiating executive entitlements gets pushed off until sign-off or close, as “you don’t want executives to focus on what they’re going to benefit from.”
“But while in the public company context awards are more likely to be worked out at a later time, in a typical private equity transaction, the purchaser makes a large grant of equity awards to the management team at the same share price the equity fund bought in at,” she tells Canadian Lawyer Magazine.
Lynne explains how the structure of the transaction can impact the approach taken to executive compensation packages.
She tells Canadian Lawyer Magazine that a strategic approach is taken in the context of publicly traded companies that are “a merger of equals. It’s easier for the equity award of the target employees to be assumed to be substituted, essentially rolling over into the parent company, if it’s a public company,” so employees can keep their stock options.
Lynne also discusses the shift to “double-trigger” change-of-control provisions in recent years.
“Double-trigger is viewed as a better governance practice,” Lynne says. “The bulk of public company plans assume that there’s a double trigger … And if the buyer is also a public company, you … can continue on the same vesting schedule.”
On the other hand, for private M&A transactions, a different structure may be used, according to Lynne. “You won’t necessarily roll over entitlements,” she tells Canadian Lawyer Magazine. “In this context, vesting is typically on a change of control, meaning that the single trigger is used to pay out equity awards.”
If you are a digital subscriber to Canadian Lawyer Magazine, read Elizabeth Raymer’s article “Managing compensation in M&A” on pages 43-45 of the August 2018 edition of Canadian Lawyer Magazine.