Golden Bungee

AAA

DEFINITION of 'Golden Bungee'

A benefit conferred to select top executives that combines a lucrative severance package and deferred cash payment and stock options. A golden bungee is generally included in an executive’s employment agreement and is activated upon a change of control such as an acquisition of the company, or a merger with another entity. The golden bungee can be regarded as a combination of a golden parachute – which is the lucrative severance package component – and a golden handcuff, which is represented by the deferred cash payment and stock options that are offered as inducement for the executive to continue staying with the company.

INVESTOPEDIA EXPLAINS 'Golden Bungee'

The golden bungee is easy to visualize, since the executive first “parachutes” down with the severance package from the previous company, but then bounces right back up with the retention package for the new combined entity. The position with the new entity is typically at a similar seniority level as the executive’s position with the old (acquired) company, or may be structured as a high-level independent contractor or consultant role.

The rationale offered for the golden bungee is that it helps top executives make strategic decisions regarding the future of the company that are in the best interests of shareholders. Otherwise, if they fear the loss of their jobs on a change of control at their company, they may be inclined to not entertain offers for the purchase or merger of the company.

A criticism of the golden bungee is that it is yet another manifestation of excessive executive compensation. It may also be a deterrent to small companies being bought or acquired, since the buyer or acquirer may balk at the additional expense incurred through the golden bungee. The acquirer may also want to bring in a new management team, in which case it may be difficult to cut the golden bungee without incurring significant additional cost.

Although the executive who is the recipient of a golden bungee undoubtedly views this corporate largesse as his or her rightful due, activist shareholders may view it as a clear case of “double dipping” (i.e. potentially being paid twice), and may ask uncomfortable questions at the next annual general meeting.

RELATED TERMS
  1. Golden Leash

    Special incentives offered to directors being nominated to serve ...
  2. Golden Coffin

    A lucrative death-benefit policy given to top executives. A golden ...
  3. Golden Hello

    A signing bonus offered to a candidate from a rival company. ...
  4. Golden Boot

    An inducement or incentive for an older worker to "voluntarily" ...
  5. Golden Handcuffs

    A collection of financial incentives that are intended to encourage ...
  6. Golden Life Jacket

    An exceptional compensation package offered by the acquiring ...
RELATED FAQS
  1. What happens when someone is given the golden boot?

    In business, the term "golden boot" describes the package used to convince older workers to take early retirement. Forcing ... Read Full Answer >>
  2. What's the difference between a golden handshake and a golden parachute?

    A golden parachute is an agreement between a company and an employee that guarantees the employee certain benefits, like ... Read Full Answer >>
  3. Why should management teams focus more on horizontal integration?

    Management teams should focus more on horizontal integrations because they allow for economies of scale, economies of scope, ... Read Full Answer >>
  4. What are employee share purchase plans?

    An employee stock purchase plan (ESPP) offers an incentive for employees to participate in their company's profitability ... Read Full Answer >>
  5. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  6. Why are the terms 'merger' and 'acquisition' always used together if they describe ...

    The terms "merger" and "acquisition" are used together because they both describe processes by which two companies become ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Retirement

    Pages From The Bad CEO Playbook

    Excess compensation, golden parachutes, tunneling and IPO spinning make these bad executives even worse.
  3. Home & Auto

    The Getty Oil Takeover Fiasco

    It was the largest takeover in history and one of the most dramatic. Learn all about the fate of Getty Oil.
  4. Options & Futures

    How Restricted Stock And RSUs Are Taxed

    This form of executive compensation limits how these stocks can be sold. Find out more here.
  5. Investing Basics

    Warding Off Hostile Takeovers

    The purpose of this article is to provide a general overview of hostile corporate takeovers, while highlighting a general course of action against such activity. This article provides basic information ...
  6. Options & Futures

    Evaluating Executive Compensation

    Find out how to determine whether a CEO is being overpaid.
  7. Mutual Funds & ETFs

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  8. Options & Futures

    Executive Compensation: How Much Is Too Much?

    The proxy statement can help determine whether a CEO is well compensated - or just overpaid.
  9. Economics

    What is a Business Model?

    Business model is the term for a company’s plan as to how it will earn revenue.
  10. Personal Finance

    Are You In The Top One Percent Of The World?

    If you live in an industrialized country, cracking the top one percent of income earners isn't as difficult as you might think.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center