Silver Parachute
What Is a Silver Parachute?
A silver parachute is a clause in a hiring contract illustrating special compensation arrangements paid to specific employees when they leave a company or their position is made excess or they are laid off. These types of clauses regularly become effective following a merger, acquisition, or other change in corporate control.
Understanding the Term Silver Parachute
Silver parachutes might incorporate [severance pay](/severancepay) as cash, a special bonus, [stock options](/stockoption), or [vesting](/vesting) of recently granted compensation. The contract contains explicit language enumerating the conditions under which the silver parachute clause will become substantial.
A silver parachute is like the more widely known golden parachute, which frequently applies to just the top executives in an organization. A silver parachute commonly incorporates more modest compensations than a golden parachute. Likewise, more employees are eligible to receive them. Golden and silver parachutes are so named in light of the fact that they are planned to give a soft landing to employees of certain levels who lose their positions.
Ordinarily, mergers and acquisitions (M&A) will likewise offer tin parachutes for different employees who lose their position in no less than three years of a change of corporate control. When authorized, employees are frequently eligible to receive one year's salary plus about fourteen days for every time of service as long as 52 weeks.
Parachute Clause Examples
The 2008 financial crisis brought many parachute clauses into the public spotlight. These unique plans drew scrutiny as the top executives of a portion of the country's biggest banks and businesses received great many dollars in severance while their companies depended on taxpayer bailouts and takeovers to remain above water.
As revealed by Time magazine, one of the more well known instances of a golden parachute was the roughly $160 million severance payment given to Stan O'Neal by Merrill Lynch. The removed chair and chief executive received his parachute payment in October 2007, just as the scope of the financial crisis was turning out to be clear.
Notwithstanding monetary awards, different instances of lavish parachute benefits incorporate
- Continued enrollment in company benefits plans
- Vesting of all retirement benefits
- Paid wellbeing and dental protection
- Compensation for legal expenses
Cases of these and other exclusive benefits drew 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.
Special Considerations
Much of the time, their goal has been to determine whether such bundles are to the greatest advantage of the firm and its investors. One contention for parachute clauses is that they energize and hold the top executives who will continue to enhance and develop their organization.
Features
- A silver parachute is a clause in a hiring contract that gives special compensation arrangements to an employee when they leave a company.
- A s ilver parachute might come as severance pay, cash, a special bonus, stock options, or vesting of recently granted compensation.
- These types of clauses regularly become effective following a merger, acquisition, or change in corporate control.
