Powers granted to shareholders to vote down pay packages for the CEO and top “named executive officers” by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act appear to be driving some change in executives’ “golden parachute” protections.

A new survey of Fortune 500 companies by Towers Watson compares change-in-control (CIC) benefits in place in 2010, and those in place today.

Smaller companies often pattern their CIC benefits on those of larger corporations, according to Robert Newbury, the director of executive compensation resources for Towers Watson. “That’s one of the reasons shareholder activists target the largest companies, because of the trickle-down effect on smaller companies,” Newbury says.

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The average “golden parachute payment mix” for Fortune 500 CEO since 2012 has consisted of 32.6% cash, 57.7% equity, 3.5% tax reimbursements, 3.1% retirement credits, only two-tenths of a percent as “perks and benefits,” and another 2.9% classified as “other.”

Rise of ‘double triggers’

Perhaps the biggest change was the growing prevalence of “double triggers” – now used by 95% of the 340 companies covered in the survey. A single trigger means that CIC benefits would be granted to executives covered by golden parachutes merely if the company is acquired. A double-trigger also requires that the executive be fired by the new owners within a fixed period of time following the acquisition, typically two years.

Four years ago only 85% of these companies required that second trigger.

Another trigger mechanism, known as the “modified single trigger,” not terribly common even before the advent of say-on-pay, has dropped to cover only 7% of CEOs, down from 16% in 2010, and 3% of other NEOs (named executive officers consist of the CEO, CFO and three next highly compensated executives), down from 9%. These triggers “allow executives to terminate their own employment typically during a 30-day period starting one year following a CIC,” says Newbury.

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These provisions were often flagged by Institutional Shareholder Services (ISS), a proxy advisor, leading to heightened shareholder opposition to executive compensation plans. “Since say-on-pay’s inception in 2011, severance and contract arrangements have been the leading reason for high concerns raised by ISS, leading to a potential ‘against’ say-on-pay recommendation from ISS,” according to the survey.

Gross-ups out of favor

An equally bright red flag for ISS is excise tax gross-ups – the practice of covering taxes due on executives’ golden parachute benefits. “Less than half of companies with formal CIC provisions continue to offer a tax gross-up in some fashion, with both full and conditional gross-ups, down a combined 46 percentage points for CEOs … since 2010,” the survey found.

Another notable survey finding is that severance multiples of compensation used to determine cash payouts are shrinking. For example, the number of CEOs with multiples of three dropped to 53% from 67%. Multiples for non-CEO NEOs, typically lower than CEOs’, also declined.

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Finally, eligibility for retirement benefits in golden parachutes has dropped. “Currently, 36% of CROs and 30% of other NEOs receive retirement credits … representing a 12- and 15-percentage drop since 2010. One reason for the drop, according to the survey analysis, is that fewer executives participate in the company’s qualified retirement plans.

The Dodd-Frank law gave shareholders possibly two proxy-voting opportunities to weigh in on golden parachute provisions: The overall “say-on-pay” vote covering all elements of NEO compensation, and another one companies can elect to use specifically devoted to CIC provisions. Few companies are availing themselves of the opportunity to have a proxy vote exclusively on CIC provisions, however, the survey found.

Richard Stolz is a freelance writer based in Rockville, Maryland.

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