When a big-ticket merger or acquisition is announced, the deal’s dollar value tends to make headlines. But, behind the scenes, executive compensation agreements can generate just as eye-popping figures.
That notion was reaffirmed in professional services firm Alvarez & Marsal’s latest Executive Change in Control Report released Tuesday.
In the company’s analysis of change in control agreements across 100 businesses in the S&P Composite 1500 Index, researchers found that CFOs took in an average of $8.45 million in benefits from such pacts. That’s up from $7.32 million in Alvarez & Marsal’s 2023/2024 CIC report issued in November 2023. CEOs, meanwhile, were entitled to an average of $26.8 million via CIC agreements, up 17% from the prior report.
Change in control pacts are not uncommon, and are intended to ensure executives put their companies’ — and shareholders’ — interest ahead of their own personal ambitions. Even Elon Musk’s recently approved $1 trillion pay package includes provisions that would let him keep unvested shares during change in control events, Reuters reported in September.
“The biggest takeaway for CFOs from this year’s report is that change in control benefits continue to be substantial,” said J.D. Ivy, Alvarez & Marsal tax managing director and co-leader of the firm’s compensation and benefits practice, in an email to CFO.com. “It is important to be prepared if a change in control is on the horizon. CFOs and companies should generally monitor the potential payouts to employees by periodically quantifying these benefits. There can also be unintended tax consequences from these payments, so it is important to stay up to date with these tax provisions, as advanced planning can be helpful at mitigating or eliminating these adverse tax implications.”
Alvarez & Marsal measured average CIC benefits by tabulating dollars allotted toward severance, annual bonuses, long-term incentives, retirement benefits and other perks. Long-term incentives, the report authors wrote, marked the “largest CIC component for the majority of market cap groups.”
“In many cases, long-term incentive values are nearly double those of cash severance payments,” they said.
Such incentives remain on Alvarez & Marsal’s watch list going into 2026. “In the new year, we will be watching closely how companies perform and the impact on stock prices with an eye towards how this impacts potential long-term incentive payouts for executives in connection with a change in control,” Ivy said in his email.
The firm’s research examined companies with market caps ranging from $400,000 all the way to $471 billion. Unsurprisingly, a company’s capitalization size affected the types of CIC benefits it conferred. For instance, those in the “mega” category — companies with a market cap between $20 billion and $471.6 billion — had the highest average value of CIC benefits at $39.4 million. Mid-cap companies, those with a market cap between $2.6 billion and $6.1 billion, had an average of $24.1 million in CIC benefits.
Alvarez & Marsal’s report also called out five big M&A deals that took place so far this year, including Capital One’s $35 billion acquisition of Discover that closed in May. The other four mega deals highlighted were Chevron’s $55 billion buy of Hess, Synopsys’ $35 billion buy of Ansys, the Amcor-Berry tie-up and Hewlett Packard Enterprise’s purchase of Juniper. In each of those five deals, the CEO and CFO of both companies involved took an average of about $33 million in CIC payments, according to Alvarez & Marsal’s analysis.
In two of the five highlighted transactions, companies used an excise tax protection provision as part of the deal. Such provisions, also known as “gross-ups,” pay an executive “the full amount of any excise tax imposed,” according to Alvarez & Marsal.
Alvarez & Marsal’s research indicates, however, that such provisions appear to be phasing out, at least in its current iteration: “The percentage of CEOs and CFOs that are entitled to excise tax gross-ups continues to decline,” the report stated. Across all 100 companies studied, 49% of CEOs were entitled to such benefits, while 45% of CFOs were entitled to the same.
When Alvarez & Marsal conducted its first change in control report back in 2006, the company found that 66% of companies were enacting excise tax gross-ups for CEOs, Ivy noted.
“While providing executives with excise tax gross-ups in employment agreements or change in control agreements has become substantially less common, we have seen a recent practice of companies providing this benefit to executives at the time of the change in control,” a practice sometimes referred to as “11th hour gross-ups,” he said. “The implementation of this can vary in practice, with some companies providing this to a broad group of employees while others provide it to a more limited group of individuals who meet certain criteria.”
