Golden parachutes, providing substantial severance packages to corporate leaders during a change in control, are facing increased scrutiny from shareholders.
Proposals advocating for a shareholder vote on executive severance agreements during a change in control have seen a remarkable 156% year-over-year increase, establishing them as the third most common shareholder proposal.
ISS has published an interesting report.
Shareholder Proposal Trend:
- "Submit Severance Agreements (Change-in-Control) to a Shareholder Vote" is the third most prevalent shareholder proposal, indicating growing concern about executive financial windfalls.
- Between January 2020 and August 2023, 61 proposals were filed within the Russell 3000, with 41 in 2023 alone.
- Challenging macroeconomic factors in recent years have amplified the focus on curbing excessive CEO and executive severance packages.
- The uptake in M&A volume as well as the fact that a recession can still not be ruled out, put additional focus on the topic.
- Shareholders argue that excessive severance packages, especially during economic downturns, can be detrimental – specifically to companies with already poor shareholder returns.
- Corporate governance activists more frequently submit "say on golden parachute" proposals for share holders
- First consequences might already be visible: ISS research indicates a drop in the median CEO golden parachute value from $13.1 million in 2022 to $10.3 million in 2023.
First Corporate Responses:
- Companies, such as Alaska Air Group and Spirit AeroSystems Holdings, engage with shareholders and implement policies requiring ratification for specific severance agreements.
Responses of Proxy Advisory Firms and Institutional Shareholders:
- Proxy advisory firms like ISS generally recommend voting in favor of such proposals.
- Larger institutional shareholders, including BlackRock and Vanguard, may support proposals if ratification is allowed after the fact.
- While in the past support levels for such proposals have been moderate, the trajectory may be influenced by macroeconomic conditions affecting corporate finances, M&A activities, and shareholder returns, making this proposal a potential focal point in upcoming proxy seasons.
