Change of Control & Severance… For What???

Recently, a member of a client’s Board of Directors asked about the need for Change in Control agreements and severance given today’s scrutiny of those plans.

Folks, to use an old adage, don’t throw the baby out with the bathwater. We frequently need both of these to create a successful environment.

Stay focused on the benefits that the organization receives, and it becomes a bit easier. Two comments, based solely on my experiences:

1. Change of Control agreements exist to ensure that the management team can, in good faith, negotiate and execute the best potential deal (causing a change of control), realizing they will receive specific remuneration for doing so.

In other words, if the best thing for the company is a deal that whacks several of the senior staff, let’s not make self-preservation an added variable.

2. Executive severance is to provide a simple, orderly process to change out leadership “at will,” even if the specific performance or behavior doesn’t necessarily warrant an immediate change.

In other words, it shouldn’t be designed so onerous as to be a handcuff to the organization, but more like a mutual “key,” where both the company and the executive are not unduly damaged economically by a company’s decision to terminate that executive.

Further, it must be VERY specific on issues surrounding substandard performance and behavior.

Both types of agreements are all over the charts, unfortunately, and the only real consistency comes from specific-sized firms in similar industries.

We still need these incentives, to be sure; let’s just use them smartly.

But that’s just me…


Kevin Berchelmann

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