Golden Parachute

Filed Under » , , , , , ,
Dictionary Says

Definition of 'Golden Parachute'

Substantial benefits given to a top executive (or top executives) in the event that the company is taken over by another firm and the executive is terminated as a result of the merger or takeover. Golden parachutes are contracts given to key executives and can be used as a type of antitakeover measure taken by a firm to discourage an unwanted takeover attempt. Benefits include items such as stock options, cash bonuses, generous severance pay or any combination of these benefits.

Also known as "change-in-control benefits."

Investopedia Says

Investopedia explains 'Golden Parachute'

Golden parachute clauses can be used to define the lucrative benefits that an employee would receive in the event he or she is terminated; however, the term often relates to terminations that result from a takeover or merger. The use of golden parachutes is controversial. Supporters believe that golden parachutes make it easier to hire and retain top executives, particularly in merger-prone industries.

In addition, proponents believe that these lucrative benefits packages allow executives to remain objective if the company is involved in a takeover or merger, and that they can discourage takeovers because of the costs associated with the golden parachute contracts.

Opponents of golden parachutes argue that executives are already well-compensated and should not be rewarded for being terminated. Opponents may further argue that executives have an inherent fiduciary responsibility to act in the best interest of the company, and, therefore, should not need additional financial incentive to remain objective and to act in the manner that best benefits the company. In addition, many people who disagree with golden parachutes cite that the associated costs are miniscule when compared to the takeover costs and, as a result, can have little to no impact on the outcome of the takeover attempt.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Shark Repellent

    Slang term for ...

  2. Camouflage Compensation

    Compensation ...

  3. Fat Cat

    A slang word ...

  4. Golden Life Jacket

    An exceptional ...

  5. Golden Coffin

    A lucrative ...

  6. Golden Bungee

    A juicy ...

  7. Signing Bonus

    A financial ...

  8. Performance Bonus

    A form of ...

  9. Golden Hello

    A signing bonus ...

  10. Silver Parachute

    A form of ...

Articles Of Interest

  1. 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. Evaluating Executive Compensation

    Find out how to determine whether a CEO is being overpaid.

  3. A Close-Up On Gross Ups

    Learn about this hidden perk and why it's often bad news for investors.

  4. Pages From The Bad CEO Playbook

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

  5. Carl Icahn's Investing Strategy

    Buying up failing investments and turning them around helped to create the "Icahn lift" phenomenon.

  6. Finding Solid Buy-And-Hold Stocks

    Find out how to look at the big picture - even when the market's short-term outlook is less than rosy.

  7. Female Managers Can Raise Share Values

    Women are quite capable of proving their worth in raising corporate value through various financial, managerial and human capabilities.

  8. Introduction To Incentive Stock Options

    Here are some basic highlights of how ISOs work and the ways they can be used.

  9. Beware Of Company Stock In Qualified Plans

    While this strategy does have a few advantages, it can also pose some substantial risks to employees.

  10. Employees Vs. Investors

    Who is more important to the CEO and a company's bottom line? Is it employees or company shareholders?
Sponsored links

comments powered by Disqus
Hot Definitions

  1. Love Money

  2. Shark Watcher

  3. Judo Business Strategy

  4. Dogs Of The Dow

  5. Chinese Hedge

  6. X-Mark Signature

Recommended
Loading, please wait...
See More »
Trading Center