golden parachute

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Related to Golden parachutes: greenmail, poison pills

golden parachute

A large severance package given to an executive who is forced to leave a company due to a corporate merger or takeover. Daniel refused to take the position unless the company added a golden parachute clause to his contract.
See also: golden, parachute

golden parachute

n. a special kind of severance pay for persons who may be forced to leave a job. (see also golden handcuffs.) If all the golden parachutes were used at the same time, it would bankrupt the company.
See also: golden, parachute

golden parachute

An employment agreement that gives generous benefits to its high-ranking executives if they are dismissed owing to a company merger or takeover. This term, dating from about 1980, may have been based on the older golden handshake, which offers an employee generous benefits or a bonus in exchange for early retirement. It dates from the mid-1900s, when a dwindling school population prompted many localities to offer such an incentive to teachers. In contrast, golden handcuffs are a financial incentive to keep an employee from leaving a company. Stock options that can be exercised only far in the future are a popular form of golden handcuffs. This term dates from about 1970.
See also: golden, parachute
References in periodicals archive ?
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.
Golden parachutes 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?
Golden parachutes, 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.