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Cimi Silverberg

Managing Director & Head of Chicago, IL Office

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Daniel Ryterband

Chairman & Chief Executive Officer, New York, NY

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Noah Kaplan

Managing Director & Head of San Francisco, CA Office

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October 21, 2022

Shareholder Proposals to Limit Severance Aim to Improve Governance But May Have Unintended Consequences

Alert | By Cimi Silverberg, Daniel Ryterband, Noah Kaplan

Amid the significant increase in shareholder proposals at Russell 3000 companies over the past year, the most prevalent executive compensation-related proposal is to limit severance payments. The proposal is substantially similar in each case and typically requests that companies seek shareholder approval for any senior manager’s new or renewed pay package that provides for severance or termination payments with an estimated value exceeding 2.99 times the sum of base salary and target bonus. This shareholder proposal has appeared on proxy ballots at 17 Russell 3000 companies over the last year and received significant shareholder support: in five cases it passed, and in the other twelve, 33-49% of shareholders voted “for.”

The proposals were written to include the value of cash severance and the value of equity awards where vesting accelerates, which means many companies’ existing severance arrangements will exceed the 2.99x threshold, especially for involuntary terminations in connection with a change-in-control (CIC).

Looking ahead, companies may increasingly be compelled to adopt policies to limit executive severance benefits, but doing so could have unintended consequences that may not be in the best interests of shareholders or result in unfair outcomes for covered executives.

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cimi-silverbergCimi Silverberg
Managing Director & Head of Chicago Office

Cimi Silverberg has twenty-two years of consulting experience, nineteen focusing solely on executive compensation. Cimi’s clients include both public and private organizations in a variety of industries and company size categories. She is a frequent writer and speaker on the topic of executive compensation and a strong contributor to the firm’s technical papers and studies.

daniel-j-ryterbandDaniel Ryterband
Chairman & Chief Executive Officer

Dan Ryterband consults to organizations on all aspects of executive compensation strategy and design, including the related tax, accounting, and securities law implications, as well as matters of corporate governance and investor relations. He has over 30 years of consulting experience and his clients include U.S. and overseas multinationals in a variety of industries, as well as smaller start-up organizations. Dan has extensive experience working with Board Compensation Committees and is a frequent speaker in industry and academic forums.

noah-kaplanNoah Kaplan
Managing Director & Head of San Francisco Office

Noah advises clients across a diverse range of industries and at various stages of the business life cycle, covering smaller private/pre-IPOs up to mature Fortune 500 companies. This includes work with technology, life sciences, media, gaming and hospitality, restaurant, engineering and construction, REITs, and specialty finance companies.

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