WHAT IS 'Golden Coffin'

A golden coffin is a death benefit package awarded to the heirs of high ranking executives who die while still employed with a company. Benefits awarded can include unearned salary, accelerated stock options and insurance proceeds.

BREAKING DOWN 'Golden Coffin'

Most public companies include golden coffin, or death benefits with other types of termination-related pay due their CEOs, with variations for whether the person is fired, becomes disabled or dies in office. Death benefits are layered on top of pensions, vested stock awards and deferred compensation, which for most CEOs already amount to large sums.

Pros and cons of golden coffin benefits

At many companies, a top executive's death triggers a large insurance payout to heirs on a policy the company paid for. Pay consultants trace one of the earliest golden coffins to Armand Hammer of Occidental Petroleum Corp. His contract called for his salary to be paid until his 99th year, whether he was alive or dead. He died at 92 in 1990.Though not all companies provide it, the most common posthumous benefit is acceleration of unvested stock options and grants of restricted stock. The rationale is that if the executive hadn't died, they would probably have stayed long enough for the awards to vest. Accelerated unvested stock awards after a death can amount to tens of millions of dollars. Some promise large posthumous severance payouts, supercharged pensions or even a continuation of executives' salaries or bonuses for years after they're dead.

A death of a CEO or chairman often is a traumatic event, both for the family and for the suddenly leaderless company. But compensation critics say that's no reason to lose sight of the pay-for-performance principle that many boards now espouse. And they call death benefits the ultimate in pay that isn't based on performance. Death benefits have become more controversial in recent years. Shareholders are reluctant to award posthumous benefits to executives that have been well paid all along.

Proponents of golden coffins claim that such death benefit packages are rarely paid out and act as inexpensive way to keep top executives and discourage unwanted takeover attempts. Companies defend the practice as an appropriate way to take care of an executive's family after an unexpected death. The benefits often are negotiated as part of a pay package that has many components. In many cases, death benefits are really a form of deferred compensation, structured partly for estate planning or tax reasons. Companies often say one goal of their pay packages is to keep executives from leaving.

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