Navigating a Change in Control: Seven Smart Steps for Corporate Executives

If you're an executive at a company undergoing a merger, acquisition or other major corporate transition, a change in control (CIC) can present both opportunity and complexity. The potential for accelerated payouts and equity vesting may be substantial, but so are the planning implications. It is important to work with your Corient Wealth Advisor to plan carefully in an effort to maximize your compensation package.

Here are seven steps to help you prepare and optimize your strategy when facing a CIC event.

Step 1: Review your employment and compensation agreements

The first step is to gather and carefully review your employment agreement, executive severance plan, and equity award documents. These materials spell out the specific triggers and entitlements under a CIC, including potential cash severance, bonus payouts, the treatment of vested equity awards and the potential acceleration of unvested equity awards. Further, these materials also highlight any obligations you may need to fulfill in order to preserve your financial interests. Understanding exactly what you’re eligible for is foundational to planning the rest of your strategy. Your Corient Wealth Advisor can help you interpret these provisions and begin modeling potential outcomes.

Step 2: Revisit your long-term financial and tax plans

Once you have a sense of your likely CIC package, work with your Corient Wealth Advisor to model how the influx of income and assets will affect your long-term goals. This includes projecting your retirement cash flow, analyzing tax brackets, reassessing estate and risk planning strategies and determining whether it’s time to accelerate or defer other major financial decisions. Proper modeling can help you move forward with clarity and potentially minimize tax liability and tax penalties related to your payouts.

Step 3: Consult an executive employment attorney

An experienced attorney can help you confirm that you’re meeting all obligations under your CIC agreements and avoid any missteps that might delay or reduce your compensation. Employment counsel can also flag any ambiguities or opportunities for negotiation. This legal review is a recommended step to help protect what’s owed to you and maximize the benefits available.

Step 4: Understand the implications of golden parachute taxes

If your total CIC payments exceed three times your average taxable compensation over the past five years (your “base amount”), you could be subject to the 20% excise tax under Section 280G. This so-called golden parachute tax applies in addition to ordinary income taxes and cannot be deducted by the company. Some employers offer mitigation strategies, such as increasing your base amount by accelerating income or bonuses pre-CIC or reducing payments to stay below the threshold, among other potential strategies. Your advisor can help you evaluate the trade-offs, including how mitigation strategies might affect both tax liabilities and long-term wealth.

Step 5: Prepare for the cash flow and tax consequences of mitigation

If your employer opts to accelerate compensation to raise your base amount under a 280G strategy, you’ll need to plan for a spike in current-year income and higher tax liability. In some cases, these payments increase tax liability if related to equity vesting but may create a liquidity issue. This may require estimated tax payments, supplemental withholding and close coordination with your advisor and CPA. While mitigation can lower your 280G exposure, it can also push you into a higher marginal bracket or cause cash-flow pressure. The key is to anticipate these outcomes and adjust your plan proactively.

Step 6: Review your company stock exposure

CIC events can dramatically shift the makeup or liquidity of your equity holdings. Take time to assess your concentration risk and think through how any change in stock ownership or restrictions will affect your wealth. In some cases, it may be worth diversifying before the CIC is finalized and again consider implications to your equity award schedules. Your advisor can help you envision different exit or transition strategies to align with your broader plan in addition to managing tax expenses.

Step 7: Recalibrate your plan post-CIC

Once the change in control is complete, revisit your wealth strategy in light of your new cash position and employment status. This includes updating your investment strategy, evaluating whether to roll over any qualified plans or non-qualified deferred compensation accounts and reassessing health, life and disability insurance coverage—especially if your employer-sponsored benefits are ending.

A change in control can represent a significant financial turning point. With smart planning, the windfall from a CIC event can fuel long-term security for you and your family. Your Corient Wealth Advisor is here to help you avoid mistakes and realize opportunities every step of the way.

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