Golden Parachutes

Large severance packages promised to senior executives if they lose their jobs after a change in company control.

Overview

Golden parachutes typically combine cash severance of several times salary and bonus with accelerated vesting of stock and continued benefits, triggered by a merger or acquisition and sometimes a subsequent termination. Supporters argue they keep executives neutral when weighing takeover offers. Critics see rewards for failure. Since 1984 the United States tax code has imposed penalties when parachute payments reach three times average base pay, and the Dodd-Frank Act added say on golden parachute shareholder votes in merger proxies.