When Performance-Based Payouts Meet Change in Control

The use of long-term incentive plans tied to pay-for-performance are gaining in prevalence. However, there is often a lack of clarity about how these plans will impact compensation during a change in control. Public companies undergoing acquisition and their potential buyers may face several difficulties around payout including:

• Disagreement between target and buyer;
• Management distraction;
• The trigger of unfavorable tax treatments; and
• Increased investor scrutiny.

This article offers clear steps for addressing many of these potential issues proactively during the design phase of a compensation plan.