Golden Bungee


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.

BREAKING DOWN '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.

  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 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. Professionals

    Hard and Soft Due Diligence: What's the Difference?

    Learn about the differences between "hard" and "soft" due diligence in a mergers and acquisitions deal (M&A) and why soft diligence is increasingly important.
  10. Stock Analysis

    How UPS Plans to Benefit from Its Coyote Acquisition

    Understand the business models of UPS and Coyote Logistics. Learn about the top four ways in which UPS will benefit from the acquisition of Coyote Logistics.
  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. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  4. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  5. How do you rollover/transfer a 401(k) to another 401(k)?

    When an employee leaves a job due to retirement or termination, the question about what to do with the accumulated balance ... Read Full Answer >>
  6. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!