Boards of directors will soon shift attention to the 2015 compensation season. Key considerations in the year ahead include the following:
1. Be Prepared for Shareholder Activists. Companies today are more vulnerable to activist attacks than ever before. Companies should therefore ensure that they understand how their change in control protections function if an activist obtains a significant stake in the company or control of the board. A change in board composition can trigger the application of the golden parachute excise tax under Section 280G of the Internal Revenue Code and can result in negative tax consequences for executives and the company. In addition, in the age of performance awards and double-trigger vesting, clarity about the impact of a change in control on performance goals matters more than ever. Appropriate protections ensure that management will remain focused on shareholder interests during a period of significant disruption; inadequate protections can result in management departures at a time when stability is crucial.