Golden Parachute
What Is a Golden Parachute?
A golden parachute comprises of substantial benefits given to top executives on the off chance that the company is taken over by another firm, and the executives are terminated because of the merger or takeover. Golden parachutes are contracts with key executives and can be utilized as a type of anti-takeover measure, frequently by and large alluded to as poison pills, taken by a firm to deter an undesirable takeover endeavor. Benefits might incorporate stock options, cash bonuses, and liberal severance pay.
Golden parachutes are hence named as such on the grounds that they are planned to give a soft landing to employees of certain levels who lose their positions.
How Golden Parachutes Work
Golden parachute clauses can be utilized to characterize the lucrative benefits that an employee would receive assuming they are terminated. The term frequently connects with the terminations of top executives that outcome from a takeover or merger. Golden parachutes might incorporate severance pay as cash, a special bonus, stock options, or vesting of beforehand granted compensation. The employment contract contains explicit language specifying the conditions under which the silver parachute clause will become substantial.
Notwithstanding monetary awards, different instances of rich parachute benefits include:
- Proceeded with enrollment in company pension plans
- Vesting of all retirement benefits
- Paid wellbeing and dental insurance
- Compensation for legal expenses
Cases of these and other exclusive benefits have drawn analysis from shareholders and the public. Thus, the post-financial crisis period has seen many companies audit their executive-level compensation policies and devise better approaches to interface executive performance to corporate achievement. Generally speaking, their goal has been to determine whether such packages were to the greatest advantage of the firm and its investors.
Debate Surrounding Golden Parachutes
The utilization of golden parachutes is dubious. Allies accept that golden parachutes make it simpler to hire and hold top executives, particularly in merger-inclined industries. Furthermore, defenders accept that these lucrative benefit packages permit executives to stay objective assuming the company is engaged with a takeover or merger and that they can deter takeovers due to the costs that are associated with the golden parachute contracts.
Rivals of golden parachutes contend that executives are as of now all around redressed and ought not be compensated for being terminated. Rivals might additionally contend that executives have an inherent fiduciary responsibility to act to the greatest advantage of the company, and shouldn't require an extra financial incentive to stay objective and act in the way that best benefits the company. Moreover, many individuals who can't help contradicting golden parachutes contend that the associated costs are tiny compared to the takeover costs and, subsequently, can no affect the outcome of the takeover endeavor.
Then, at that point, there is the golden handshake. It is like a golden parachute in that it offers a severance package to an executive when they become jobless. While the two terms portray severance packages given to such an executive upon the termination of duties, a golden handshake goes further to incorporate the severance packages conceded to executives upon retirement, too.
Instances of Golden Parachutes
A few instances of golden parachutes that have been reported in the press include:
- Meg Whitman, chief executive officer (CEO) of Hewlett-Packard Enterprise, stood to receive nearly $91 million assuming that the company was acquired influenced quite a bit by. She was additionally guaranteed more than $51 million in compensation assuming she was terminated. She received a total of $35.6 million after the company was pared down.
- Staples and Office Depot were investigating a merger until a federal court blocked it in May 2016. Had they merged, the CEO of Office Depot would have collected $39 million under the terms of his golden parachute.
- Dell merged with storage monster EMC in 2016. Per the terms of his golden parachute, EMC's CEO received $27 million in compensation.
Features
- Notwithstanding large bonuses and stock compensation, golden parachutes might incorporate continuous insurance and pension benefits.
- The practice is dubious as ineffectively performing or brief CEOs and other top executives can get compensated large totals for nearly nothing or inadequately perceived work.
- Golden parachutes are lucrative severance packages inked into the contracts of top executives that remunerate them when they are terminated.
