Golden parachute


Golden parachute

A golden parachute is a non-contractual agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is unspecified. These benefits may include severance pay, cash bonuses, stock options, or other benefits. They are designed to reduce perverse incentives.

Proponents of golden parachutes argue that they provide three main benefits:
# Golden parachutes make it easier to hire and retain executives, especially in industries more prone to mergers.
# They help an executive to remain objective about the company during the takeover process.
# They dissuade takeover attempts by increasing the cost of a takeover.

Critics have responded to the above by pointing out that:
# Dismissal is a risk in any occupation, and executives are already well compensated.
# Executives already have a fiduciary responsibility to the company, and should not need additional incentives to stay objective.
# Golden parachutes costs are a very small percentage of a takeover's costs and does not affect the outcome.

The use of golden parachutes have caused some investors concern since they don't specify that the executive had to perform successfully to any degree. Their concern is understandable since many golden parachute clauses can promise executive compensation benefits well into the millions. In some high-profile instances, some executives such as Carly Fiorina cashed in their golden parachute while under their stewardship their companies lost millions and thousands of workers were laid off as a result.

The first known use of the term "golden parachute" dates back to when creditors sought to oust Howard Hughes from control of TWA airlines. The creditors provided Charles C. Tillinghast Jr. an employment contract -- dubbed a golden parachute in likely reference to the protection a parachute offered -- with protection against the almost definite job loss Tillinghast would have faced if famed aviator Howard Hughes had successfully maintained control of TWA.

The use of the term "golden parachute" has significantly increased in 2008 due to the global economic recession, especially being used by news media and in the 2008 Presidential Debates. [ [http://www.google.com/trends?q=Golden+Parachute&ctab=0&geo=all&date=all Gross increase in "golden parachute" queries in 2008 "] , "Google Trends" ]

The use of golden parachutes expanded greatly in the early 1980s in response to the large increase in the number of takeovers and mergers.

According to a 2006 study by the Hay Group human resource management firm, the French executives' golden parachutes are the highest in Europe, and equivalent to the funds received by 50% of the American executives. In contrast, the French standard revenues for executives located themselves in the European average. French executives receive roughly the double of their salary and bonus in their golden parachute. [ [http://www.latribune.fr/info/Les-PDG-francais--champions-des--%C2%A0parachutes-dores%C2%A0--%7E-20070612U743R7M-$Db=Tribune/Online.nsf Les PDG français, champions des " parachutes dorés "] , "La Tribune", 12 June 2007 fr icon] [ [http://www.lemonde.fr/web/recherche_breve/1,13-0,37-993713,0.html Les patrons français sont les champions du "parachute doré"] , "Le Monde", 12 June 2007 fr icon ]

References

See also

* Golden handshake
* Golden handcuffs
* Golden Life Jacket

External links

* [http://www.investopedia.com/terms/g/goldenparachute.asp Golden Parachute] from Investopedia.com
* [http://www.investorwords.com/2201/golden_parachute.html InvestorWords.com's definition of golden parachute] and related terms


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Look at other dictionaries:

  • golden parachute — gold·en para·chute n: an agreement providing for generous compensation to an executive upon dismissal (as because of a merger) Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. golden parachute …   Law dictionary

  • golden parachute — parachute par a*chute, v. i. TO descend to th ground from an airplane or other high place using a parachute; as, when the plane stalled, he parachuted safely to the ground. [PJC] {golden parachute} a generous set of financial benefits, including… …   The Collaborative International Dictionary of English

  • golden parachute — golden parachutes N COUNT A golden parachute is an agreement to pay a large amount of money to a senior executive of a company if they are forced to leave. [BUSINESS] Golden parachutes entitle them to a full year s salary if they get booted out… …   English dictionary

  • golden parachute — n informal part of a business person s contract which states that they will be paid a large amount of money if they lose their job, for example if the company is sold …   Dictionary of contemporary English

  • golden parachute — noun count BUSINESS a promise to pay a senior manager a lot of money if they are forced to leave their job in the future …   Usage of the words and phrases in modern English

  • golden parachute — n. Informal a large sum of money or other compensation given as severance pay to a top executive who is dismissed from a corporation as a result of its being acquired by another company …   English World dictionary

  • Golden parachute — Compensation paid to top level management by a target firm if a takeover occurs. The New York Times Financial Glossary * * * golden parachute ˌgolden ˈparachute noun [countable] HUMAN RESOURCES an arrangement in which a senior employee of a… …   Financial and business terms

  • golden parachute — compensation paid to top level management by a target firm if a takeover occurs. Bloomberg Financial Dictionary * * * golden parachute ˌgolden ˈparachute noun [countable] HUMAN RESOURCES an arrangement in which a senior employee of a company will …   Financial and business terms

  • golden parachute — UK / US noun [countable] Word forms golden parachute : singular golden parachute plural golden parachutes business a promise to pay a senior manager a lot of money if they are forced to leave their job in the future …   English dictionary

  • golden parachute — noun giving top executives lucrative benefits that must be paid by the acquirer if they are discharged after a takeover • Hypernyms: ↑shark repellent, ↑porcupine provision * * * noun, pl ⋯ chutes [count] : a large amount of money that a company… …   Useful english dictionary


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