Csp Q19

Front 1

QBS 19: 1 of 5
Parachute Payments Triggered By

Back 1

1) Change in ownership of corporation
2) Change in effective control of corporation
3) Change in ownership of a substantial portion of assets of corporation
4) Termination of employment
a) If occurs within 1 or 2 years of a CIC, or
b) If voluntary (not very common)
c) If involuntary except for death, disability, retirement or if egregious act committed
5) Constructively discharged

Front 2

QBS 19: 2 and 3 of 5
Why Provide Parachutes
(1 and 2 of 2)

Back 2

1) Necessary part of comp package to attract and retain senior executives
2) Provides protection for unanticipated termination
3) Motivates executive to act in best interest of shareholder if there is a potential control change
4) Executive less likely to terminate as a preemptive move if there is a potential control change
5) Allows executive to focus on merits of proposal with some degree of detachment
6) In best interest of shareholder if an appropriate way to attract and maintain management and its costs are reasonable

Front 3

QBS 19: 4 and 5 of 5
Common Types of Parachute Benefits
(1 and 2 of 2)

Back 3

1) Severance pay
2) Deferred compensation
a) May pay an immediate LS in lieu of a deferred annuity
b) Vesting may be accelerated to immediate vesting
c) May secure benefits by funding obligation through trust
d) May include additional service, salary continuation, and age (provides better ERF) when calculating benefit
3) Stock options and SARs (Stock appreciation rights)
- May allow immediate exercise in the event of a change-of-control
4) Restricted stock
- Often vest immediately in the event of change-of-control
5) Long-term incentive awards
- Typically based on performance evaluated over a period of several years
6) Welfare benefits
- Executives usually provided with continued life insurance, medical benefits, and LTD benefits for 1 to 3 years