golden parachute


Also found in: Dictionary, Thesaurus, Legal, Idioms, Encyclopedia, Wikipedia.
Related to golden parachute: greenmail, poison pill, Silver Parachute

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 ?
Thus, the longer the board tenure, the greater the likelihood of a golden parachute.
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.
The NCUA Board would have final authority over whether a golden parachute is allowed and the criteria it uses will include what degree the employee had managerial or fiduciary responsibility; the length of time the employee was affiliated with the credit union and does the payment represent a reasonable payment; and any other factors that could be considered.
While it can offer much more, the typical golden parachute provides the recipient with a minimum of three times his or her annual salary, three years' worth of bonus, and three years' continuation of principal benefits, says Roger Siske, a partner at Sonnenschein Nath & Rosenthal in Chicago and chairman of its national employee benefits and executive compensation practice.
Golden parachute payments made to corporate executives, which are contingent on a change in ownership or control, are limited under Sec.
One month after these contracts were agreed to--and following enactment of the golden parachute rules (IRC sections 280G and 4999)--Jewel and the executives changed the agreements, reducing the amount of severance pay so there would be no "excess parachute payments" under the newly enacted rules.
Auditors examining the businesses will focus on eight primary areas: nonqualified deferred compensation, stock-based compensation, the $1 million cap on compensation paid to public company officers, golden parachute arrangements, split-dollar life insurance, fringe benefits and the use of two listed transactions (family limited partnerships and offshore employee leasing).