Generally referred to as "golden parachutes
" (or GPs), these are contracts between the executive and the employer that provide for additional compensation should a change in control or ownership occur (Krueger, 1985).
Nevertheless, when it comes to compensation, golden parachutes
are fraught with the potential for moral hazard.
The NCUA defines golden parachutes
as payments that are "contingent on the termination of that person's employment and received when the credit union making the payment is troubled, capitalized or insolvent."
"Increasingly," Bowie adds, "companies are beginning to implement shareholder proposals, especially when they address today's hot issues, such as de-classifying (electing them annually) staggered boards; eliminating 'poison pills' or agreeing to put them to a shareholder vote; expensing stock options and allowing shareholders to vote on golden parachutes
that exceed three times an executive's compensation."
This executive compensation compliance initiative will focus on eight issues: (1) nonqualified deferred compensation; (2) stock-based compensation; (3) the $1 million cap on deductible compensation; (4) golden parachutes
; (5) split-dollar life insurance; (6) transfers of compensatory options to related parties; (7) offshore deferred compensation arrangements; and (8) executive perks.
became popular in the early 1980s, the heyday of corporate raiders such as Carl Icahn and T.
Corporate governance includes the selection of directors; executive compensation; performance evaluation of the CEO, the board, and individual directors; proxy statement disclosures; golden parachutes
and poison pills; conduct of annual meetings; and much more.
ALEXANDRIA, Va.--Federally insured credit unions that are insolvent, in conservatorship or have ratings of CAMEL 4 and 5 would be prohibited from offering golden parachutes
to their executives under a proposed rule unveiled by the NCUA at last Thursday's meeting.
According to a report by Reuters, the legislation would disburse the funds in tranches, limit 'golden parachutes
' for executives at companies participating in the programme, and set up an oversight board to supervise the programme, which would be run by the US Treasury.
The action stems from a 2003 IRS audit initiative that revealed a host of perceived compliance issues, the firm says, "ranging from non-reporting of compensation by executives to deficient corporate governance practices involving incentive payments, non-qualified deferred compensation, golden parachutes
and executive perks."
Given the gargantuan size of some golden parachutes
, perhaps a more appropriate headline would read: "Want a really big bonus?
, however, have significant tax implications for both the company and the executive.
David McLaughlin, compensation expert with The Hay Group, in "On Golden Parachutes
: Following the Leader and Other Fallacies" [Summer 1982].
"But," he acknowledged, "I'm a shareholder, too, and maybe we should just bargain for the best price and be done with it." Wally questioned whether he should mention golden parachutes
if no one else did.
Another interesting trend is that golden parachute
amounts as a percentage of the target's equity value tend to increase as deals become smaller.