golden parachute

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Golden parachute

Compensation paid to departing top-level management by a target firm if a takeover occurs.

Golden Handshake

A clause in a high-ranking executive's hiring contract describing a lucrative severance package once the executive leaves the company. The package often includes cash and stock options worth millions of dollars, as well equity in the company. The executive is normally eligible for a golden handshake regardless of the circumstances under which he/she left the company, whether retirement, redundancy brought about from a merger or acquisition, or termination for mismanagement. Controversy surrounding the practice tends to increase in times of increased mergers, as well as in economic downturns.

golden parachute

An employment agreement that provides a firm's key executives with lucrative severance benefits in the event that control of the firm changes hands and that shifts in management subsequently occur. A golden parachute benefits management more than the stockholders. Also called golden umbrella. See also silver parachute.
Case Study After a rocky year that included embarrassing financial disclosures and a plummeting stock price, one-time high-flying Enron Corporation was forced in November 2001 to seek a major cash infusion to shore up its balance sheet. Improper accounting caused the Houston-based energy trading company to disclose that the firm would reduce four years of previously reported income by over half a billion dollars. The company was also forced to write down assets and reduce shareholders' equity. Competitor Dynegy, Inc., came to Enron's aid by proposing an all-equity $8.85 billion takeover. Enron's chairman, Kenneth Lay, was eligible for severance benefits under certain circumstances, including a change in management that resulted in a termination of his employment. Lay had worked at the firm since 1984, when it was a regional pipeline company operating under as Houston Natural Gas Company. The golden parachute was to pay Lay a lump sum of $20.2 million for each year remaining on his contract. The chairman had three years remaining at the time of the Dynegy offer, meaning he was entitled to receive a lump-sum payment of over $60 million. To the surprise of many, Lay announced at a meeting with Enron employees that he would waive his right to the severance pay. As it turned out, the Dynegy offer was shortly withdrawn and a month later Enron was in bankruptcy. Information released following the bankruptcy indicated that Enron executives had personally profited in financial dealings with the firm.

golden parachute

see TAKEOVER BID.

golden parachute

see TAKEOVER BID.

Golden Parachute

An agreement entered into by a corporation with its top executives to make payments to the executives in the event of a change in corporate control. Such payments are treated as compensation.
References in periodicals archive ?
From an agency theory perspective (Gibbons and Murphy, 1988), there are two possible explanations for the existence of golden parachutes. On the one hand, GPs may act to align the interests of management and shareholders and thus be economically efficient.
To examine the impact of golden parachutes, two colleagues and I analyzed a sample of 851 acquisition bids from 1999-2007, giving particular emphasis to variables designed to signify the potential for moral hazard.
CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn wrote that the board should permit credit unions to make golden parachute payments to former executives of insolvent or CAMEL 4 or 5 credit unions if the executive "was not involved in causing the loss."
Golden parachute payments made to corporate executives, which are contingent on a change in ownership or control, are limited under Sec.
Their response was a provision in the Deficit Reduction Act of 1984 creating tax penalties for companies awarding excessive severance packages, or what had come to be called golden parachutes. Wags called the legislation the "Bill Agee bill" because it was prompted in part by Congressional indignation over a severance package awarded to the Bendix Corp.
The three-year limits on golden parachutes. The FASB rules.
NCUA Attorney Pamela Yu said there are exemptions to the golden parachute rules to allow for previously agreed to deferred compensation plans and legitimate "nondiscriminatory" severance pay plans.
While a few of the law firm's clients have been audited in the past on deferred compensation and golden parachutes, there has been "very little history" of the IRS actively auditing these areas, Fuller adds, describing the situation as something akin to "benign neglect."
For an executive, a golden parachute is a very good severance package.
The two most popular tax approaches for golden parachutes are
The so-called golden parachute is the "in" topic incorporate boardrooms and executive suites.
Wally, an employee, manager and inside director, thinks of his own self-interest and economic well-being - that is, golden parachutes. This is a natural response.