The Impact of Mergers and Acquisitions on Executive Compensation
Mergers and acquisitions (M&A) can be a tricky business, especially when it comes to executive compensation. According to Elizabeth Boyd, a partner at Blake, Cassels & Graydon LLP, acquirers need to have a clear understanding of their objectives before diving into these complexities. Decisions about equity incentives, tax implications, and employment law must all be carefully considered.
When it comes to equity incentives, a key question is whether existing programs should continue, be replaced, or canceled altogether. Dov Begun, a partner at Osler, Hoskin & Harcourt LLP, emphasizes the importance of understanding the commercial deal and the acquirer’s intentions with option holders.
The type of transaction, whether a share purchase, asset purchase, or amalgamation, can lead to different outcomes for executive compensation. Existing compensation plans may have provisions related to change of control, cash-out conditions, or accelerated vesting that need to be taken into account.
Tax considerations are also crucial, but not always the main driver of executive compensation decisions. Changes to Canada’s tax deduction rules in 2021 and proposed harmonization with new capital gains tax rules can complicate matters. Boyd warns that tax implications can vary depending on the type of shares involved and any attached rights.
From an employment law perspective, the focus shifts to change of control, restrictive covenants, and termination provisions. Andrea York, a national leader at Blake, Cassels & Graydon, highlights the need for buyers to understand and potentially renegotiate agreements with affected executives in asset purchases or changes in control.
As for negotiations around equity compensation, Antigoni Michalopoulos of PwC Canada emphasizes that this is a critical part of determining executive retention, as well as building trust between parties. Ultimately, M&A transactions can be complex, but understanding these legal and financial intricacies is essential to navigating them successfully.
