Melissa Burek and Eric Hosken of Compensation Advisory Partners have issued a report which describes four critical work streams for executive compensation in a spin-off.
Here's a summary:
"Spin-offs have been in the news for several years (60 in 2014; 40 in 2015; major spin-offs completed by Alcoa, Danaher, Emerson Electric, Johnson Controls, and Xerox in 2016). Spin-off activity will continue into 2017 with a number of pending transactions including major companies like Ashland, Biogen, Hilton Worldwide, and MetLife. The need to create shareholder value during a period marked by low returns from most asset classes is driving the spin-off activity. In some cases, activist shareholders have pushed companies to create value by breaking businesses into their component parts. When a business undergoes a spin-off, the human resource and executive compensation implications for executives at both the Parent Company (ParentCo) and the Spin-off Company (SpinCo) are very significant.
Having advised many companies as they worked through the spin-off process CAP has identified four critical work streams for executive compensation:
• Establishing Transitional Compensation Arrangements (e.g., near-term retention plans)
• Understanding and/or Modifying Outstanding Compensation Arrangements (e.g., outstanding equity awards, severance and change in control agreements, benefit plans, etc.)
• Developing Going Forward Compensation Programs for SpinCo, equivalent in many ways to standing up a newly public company in an IPO
• Modifying Compensation Programs for ParentCo, as necessary to reflect new business focus and business scale"