What Is Single Trigger Acceleration and How Does It Work?

Single trigger acceleration is a provision within executive compensation and employment agreements, designed to safeguard an executive’s financial interests. This clause provides a mechanism for certain compensation elements to become immediately accessible upon the occurrence of a specific event. It offers a layer of protection, particularly in situations that could otherwise disrupt an executive’s long-term financial plans tied to their employment.

Defining Single Trigger Acceleration

Single trigger acceleration refers to a contractual provision that causes unvested equity or deferred compensation to become fully vested or immediately payable upon the occurrence of a single, predefined event. This mechanism bypasses typical vesting schedules, which usually require continued employment over a period for an employee to gain full ownership of their equity awards. For example, if an employee has stock options that vest over four years, a single trigger event could make all unvested options immediately exercisable, regardless of how much time has passed on the original schedule. This acceleration provides an employee with immediate access to the value of their equity holdings.

Typical Triggering Events

The most common event serving as a single trigger for acceleration is a “change of control” of the company. A change of control typically refers to a significant shift in the ownership or management structure, such as a merger, acquisition, or the sale of substantially all company assets. This event can also include the transfer of a certain percentage of voting shares to a new owner or group, or a significant change in the board of directors. A company sale or merger is frequently chosen as the single trigger because it represents a fundamental transformation of the company. While less common, a single trigger can also be activated by an involuntary termination of employment without cause, or resignation for good reason.

Accelerated Compensation Elements

Single trigger acceleration primarily impacts unvested equity awards. These include common forms such as stock options, restricted stock units (RSUs), and performance share units (PSUs). When the trigger event occurs, the unvested portions of these awards become fully vested, giving the executive immediate ownership. For example, unvested RSUs would convert into actual shares, and unexercised stock options would become immediately available for exercise. While equity awards are the most common elements, single trigger acceleration can, in some instances, also apply to severance payments, making them immediately payable upon the triggering event.

Single Versus Double Trigger Acceleration

In contrast, double trigger acceleration requires two distinct events to occur before compensation acceleration takes effect. The first trigger for double acceleration is typically a change of control. However, the second trigger is usually the executive’s involuntary termination of employment without “cause,” or resignation for “good reason,” occurring within a specified timeframe after the change of control, often within 9 to 18 months.

Double trigger acceleration is significantly more common in current executive compensation agreements than single trigger. This preference stems from the desire to align the interests of employees, investors, and potential acquirers. While single trigger provides immediate security for the executive, it can sometimes disincentivize continued employment post-acquisition, and acquirers often prefer to retain key talent. Double trigger provisions offer a balance, providing a safety net for executives if they are dismissed following an acquisition, while also incentivizing them to remain with the company through a transition period.