Golden Parachute

AAA

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 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.

RELATED TERMS
  1. Golden Bungee

    A benefit conferred to select top executives that is a combination ...
  2. Performance Bonus

    A form of additional compensation paid to an employee or department ...
  3. Signing Bonus

    A financial award, often issued in one or two lump-sum payments, ...
  4. Golden Coffin

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

    A signing bonus offered to a candidate from a rival company. ...
  6. Golden Life Jacket

    An exceptional compensation package offered by the acquiring ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding ...

  2. Retirement

    Pages From The Bad CEO Playbook

  3. Options & Futures

    Evaluating Executive Compensation

  4. Options & Futures

    A Close-Up On Gross Ups

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center