WHAT IS 'Golden Life Jacket'

A golden life jacket is an exceptional compensation package offered by an acquiring company to the top executives of the company being bought. The offer is meant to keep those executives interested in retaining their positions and not leaving during the transition to new ownership, a transition that is notorious for forcing out top-level executives in order to replace them. It is called a golden life jacket because it is intended to keep the executive afloat in the current position.

BREAKING DOWN 'Golden Life Jacket'

A golden life jacket is a sweetheart deal to keep top executives from leaving when the company they work for is acquired or merges with another company. During a merger or acquisition, it is common for top executives to leave, knowing that they might be edged out anyway or that they will not want to deal with the political chaos that results from a merger. If the acquisition is a hostile takeover, there are very few reasons a top executive would want to stay and be forced to navigate under adversarial new c-level teams. If the leadership taking over the company or leading the merger recognizes talent and wants the stability of keeping current executives in place during the transition, it is worth it to them to offer significant amounts of money and other perks as an incentive to those executives to stay through what can be a complicated working situation.

A golden life jacket may include in-the-money options and additional large bonuses as benefits, plus other vanity incentives such as parking spots, company vehicles and increased titles. The options offered may not be in the best interests of shareholders, as the executive holding the options could be unaffected by large swings in share prices, so there is really no reason for them to do more than stay in the position. 

Furthermore, there is less incentive to make the best possible decisions, which could impact the share price of the company, because the executives often receive the benefits regardless of how well the company performs.

Golden Life Jacket vs Golden Parachute

A golden life jacket is a financial and benefits compensation package designed to induce an executive to stay when a company is being acquired. In contrast, a golden parachute is a financial compensation package guaranteed to an executive if they are dismissed as the result of a merger or takeover. The golden life jacket is focused on retaining talent to create stability, and benefits the company, although it may not benefit the shareholders. The golden parachute is a deal to protect talent from political and cost-cutting moves, and does not benefit the company except as protection from lawsuits.

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