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Golden Parachute

A golden parachute is a contractually guaranteed financial package given to executives if they are terminated following a merger, acquisition, or significant change in company control. The package often includes cash bonuses, stock options, and other benefits, ensuring financial security for the executive during corporate upheavals. Golden parachutes are designed to attract and retain top talent by providing a safety net but are sometimes criticized for being overly generous.

Example

An executive receives a golden parachute worth millions when the company is acquired, including a cash payout, stock options, and health benefits, providing security during the transition.

Key points

• Financial package provided to executives upon termination after a merger or takeover.

• Includes cash, stock options, and other benefits to ensure financial security.

• Designed to attract top talent but often criticized for excessive payouts.

Quick Answers to Curious Questions

They can be seen as excessive rewards that benefit executives even in cases of poor performance or when companies face financial difficulties, raising ethical concerns.

They help attract and retain top executives by providing financial security, ensuring leadership stability during mergers or takeovers.

Shareholders may view these packages as wasteful, reducing overall value, especially if they are awarded despite poor company performance.