Golden Parachute

Golden parachutes can include cash severance, accelerated vesting of shares and options, continued bonuses, pension enhancements and other benefits. They are written into executives’ employment contracts.

Supporters argue they help companies attract executives and encourage them to consider takeover offers objectively, even if accepting would cost them their jobs. Without such protection, executives might resist offers that are good for shareholders.

For example, a chief executive’s contract might entitle them to three times their annual salary and bonus, plus immediate vesting of all share awards, if they are dismissed within two years of the company being acquired.

Critics argue golden parachutes reward executives regardless of performance, can be excessively generous and may make takeovers more expensive. In the United States, shareholders of companies being acquired have an advisory vote on golden parachute payments, and tax rules penalise excessive payments. In the United Kingdom and some other countries, governance codes and shareholder pressure have limited their size.