What is a Golden Parachute?
A golden parachute is a type of severance agreement in which a top executive of a company is provided with a substantial amount of benefits if they are terminated as a result of a merger or acquisition. These benefits often include cash payments, stock options, bonuses, and other perks that are meant to soften the blow of losing their position.
Benefits of Golden Parachutes
Golden parachutes are designed to incentivize executives to stay with a company and act in the best interest of shareholders, even in the event of a change in ownership. They also provide a sense of financial security for executives who may be more likely to take risks and make tough decisions on behalf of the company if they know they will be financially protected in the event of a termination.
Examples of Golden Parachutes
One famous example of a golden parachute is the $21 million severance package that Walt Disney Company CEO Michael Eisner received when he stepped down from his position in 2005. Another example is the $34.9 million golden parachute that Home Depot CEO Robert Nardelli received when he resigned in 2007.
Case Studies
In 2020, the CEO of online marketplace eBay, Devin Wenig, received a $57 million golden parachute after stepping down from his position. This caused controversy among investors and shareholders who felt that the amount was excessive and not justified. Similarly, in 2018, the CEO of the pharmaceutical company Allergan, Brent Saunders, received a $32 million golden parachute when he resigned, which drew criticism from activist investors.
Statistics on Golden Parachutes
According to a study by Equilar, a data analytics company, the average golden parachute for CEOs of S&P 500 companies was $16.9 million in 2020. This represents a significant increase from previous years, indicating that golden parachutes are becoming more common and lucrative for top executives.
