Golden Parachute

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Definition of 'Golden Parachute'

A golden parachute is a severance package typically given to top executives of a company that is undergoing a merger or acquisition. The package is designed to protect the executive from the financial impact of the change, and typically includes a lump-sum payment, continued salary and benefits for a certain period of time, and stock options.

Golden parachutes have been controversial since their inception, with critics arguing that they are a form of corporate welfare that rewards executives for failure. Supporters argue that they are necessary to attract and retain top talent, and that they help to ensure a smooth transition during mergers and acquisitions.

The size of golden parachutes has increased in recent years, and they have become a major issue in corporate governance. In 2018, the average golden parachute for a CEO was $24.2 million, according to a study by Equilar. This is more than 100 times the median salary of an American worker.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included a provision that limited the size of golden parachutes for executives of companies that receive government bailouts. However, this provision has not been widely enforced, and golden parachutes continue to be a major source of controversy.

In addition to the financial impact, golden parachutes can also have a negative impact on corporate culture. They can create a sense of entitlement among executives, and they can make it difficult to hold executives accountable for their performance.

Despite the controversy, golden parachutes are likely to continue to be a part of corporate life for the foreseeable future. They are a valuable tool for attracting and retaining top talent, and they can help to ensure a smooth transition during mergers and acquisitions. However, it is important to ensure that golden parachutes are not excessive, and that they do not create a culture of entitlement.

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