A vote against proposed change-in-control payments by shareholders at Independent Bank Group Inc. hinged in part on the future employment status of the executives set to receive those payments.

Shareholders at an Aug. 14 meeting voted to reject proposed golden parachutes for CEO David Brooks and his brother, Vice Chairman Daniel Brooks, related to the company's planned acquisition by SouthState Corp. By a margin of roughly 18.9 million votes, shareholders followed the recommendations from proxy advisory firms Glass Lewis and Institutional Shareholder Services (ISS), which opposed the payments because both executives are expected to remain employed at SouthState after the deal closes.

The vote, which was nonbinding, was the second high-profile shareholder action against deal-related payments in recent months. HomeStreet Inc. shareholders in June rejected a golden parachute proposal related to its proposed sale to FirstSun Capital Bancorp.

In the Independent Bank Group situation, Glass Lewis and ISS noted that the executives' payments hinged only on the deal closing. The industry best practice is to have a "double trigger" for such payments to executives: the closing of the deal plus a departure from the company.

"When an excessive proportion of payments rely simply on the change in control, Glass Lewis believes shareholders should question whether executives are entering this merger with the best interests of the long-term shareholders of the Company represented," Glass Lewis said in its report.

Problematic payday

David Brooks is set to receive a $12.8 million change in control payment in cash and a $5 million cash transaction bonus, both of which are "single trigger." His package will total $24.3 million in both cash and equity, according to the company's proxy statement. Daniel Brooks is to be awarded a $4 million "single trigger" change in control payment in cash. His overall payout is $8.7 million, including both cash and equity.

The current CEO plans to continue to serve as a member of SouthState's board of directors until 2027, according to Independent Bank Group's proxy statement, but that filing "does not clearly disclose whether he will also continue as an employee or advisor," ISS' report states. The vice chairman will continue to serve as executive vice president of SouthState, executive adviser to the CEO and a member of the operating committee until 2025.

Glass Lewis said shareholders should question the need for a cash bonus if both men plan to remain employed by SouthState after the transaction.

A "single trigger" payment, such as a transaction bonus, is an additional cost to shareholders, Maria Vu, Glass Lewis' senior director of North American compensation research, said in an interview. Shareholders tend not to like one-off awards and usually approve long-term arrangements with more retention value to ensure the executives aid in the transition, she said.

There has been an uptick in problematic pay packages in 2024, according to Vu. By percentage, Glass Lewis has supported fewer golden parachute proposals this year than in 2023, although the approval rates tend to fluctuate from year to year, she said.

Nonbinding vote

In the HomeStreet deal, some shareholders said the planned acquisition by FirstSun undervalued the company and that HomeStreet's executives did not deserve their proposed payout. Some shareholders also expressed frustration that their vote was nonbinding.

While merging firms do not have to change course if their executive payment proposals fail shareholder votes, those disapprovals send a message to management that stockholders do not think the payments are in their best interest, said Laura Hay, who advises institutions on executive compensation as a partner at Meridian Capital Partners.

"The more support you can get in these combinations, the smoother the transition to combine will be," Hay said.

Companies, and especially directors are sensitive to the shareholder voting outcomes, Vu said.

"This is something that reflects their decision-making," Vu said. "If the shareholders of the company that you are a director of disagree, and to this scale, it is a reputational risk for the directors."