Retaining Key Employees While Managing Financial Risk
By Scott Oberstaedt, Willis Towers Watson, a Partner of M&A Leadership Council
Board of director approval is often the final stop for companies looking to make an acquisition offer, but it’s increasingly common for the compensation committee to be included in both the pre-announcement and pre-closing phases of major acquisitions. While mergers and acquisitions (M&A) review may not be specifically included in the compensation committee’s charter and it remains less common for committees to be involved in the approval of broad-based compensation plans, committee members are often included in any executive compensation negotiations relating to possible acquisitions for any of several possible reasons, including:
- To ensure that compensation offers to acquired company executives do not create external or internal pay equity concerns, especially if any of those executives become executive officers of the acquirer as part of the deal
- To avoid setting extraordinary new precedents in terms of compensation policy, such as excessively generous severance terms, compensation guarantees or unduly favorable equity treatment
- To ensure that possible incentive awards fall within shareholder-approved plan limits, such as maximum equity grants or bonus opportunities.
