A golden parachute is a non-contractual agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is unspecified. These benefits may include severance pay, cash bonuses, stock options, or other benefits. They are designed to reduce perverse incentives.
Proponents of golden parachutes argue that they provide three main benefits:
Critics have responded to the above by pointing out that:
The use of golden parachutes have caused some investors concern since they don't specify that the executive had to perform successfully to any degree. Their concern is understandable since many golden parachute clauses can promise executive compensation benefits well into the millions. In some high-profile instances, some executives such as Carly Fiorina cashed in their golden parachute while under their stewardship their companies lost millions and thousands of workers were laid off as a result.
The first known use of the term "golden parachute" dates back to when creditors sought to oust Howard Hughes from control of TWA airlines. The creditors provided Charles C. Tillinghast Jr. an employment contract -- dubbed a golden parachute in likely reference to the protection a parachute offered -- with protection against the almost definite job loss Tillinghast would have faced if famed aviator Howard Hughes had successfully maintained control of TWA.
The use of the term "golden parachute" has significantly increased in 2008 due to the global economic recession, especially being used by news media and in the 2008 Presidential Debates.
The use of golden parachutes expanded greatly in the early 1980s in response to the large increase in the number of takeovers and mergers.
According to a 2006 study by the Hay Group human resource management firm, the French executives' golden parachutes are the highest in Europe, and equivalent to the funds received by 50% of the American executives. In contrast, the French standard revenues for executives located themselves in the European average. French executives receive roughly the double of their salary and bonus in their golden parachute.
New Golden Parachute Compensation Disclosure And Shareholder Advisory Vote Requirements.(Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010)
Jun 07, 2011; The Securities and Exchange Commission's (the "SEC") new disclosure and advisory vote requirements for compensation based on or...
Removal Of Tax Gross-Ups Results In Heightened Sensitivity To Golden Parachute Rules In Corporate Transactions.
Mar 02, 2010; A sensitive issue in many corporate transactions is whether amounts to be paid to a target's executives will be treated as golden...