Concept: Golden Parachute

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What?

• Contracts in the form of substantial benefits given to key executives who have been laid off after a takeover
• Form of poison pill 

Concept

• Used as a type of anti-takeover measure
• Named so because their aim is to provide a soft landing for employees at higher levels who have lost their jobs
• Benefits may include cash bonus, insurance, stock option, severance pay, pension package
• Compensation is usually thrice the annual basic salary of top executives

Disadvantages

• Controversial practice 
• Lucrative for short-lived CEOs and low-performance executives, who get paid large sums for less or poor work
• The target company becomes less attractive when the Golden Parachute cost is a lot higher for the acquiring company

Examples

• Dell Inc.'s merger with EMC Corporation compensated EMC's CEO with $27 million
• CEO Meg Whitman of HP may receive over $9 million if there is a change of control at the company and more than $51 million if she is terminated
• If in May 2016, the federal court had not blocked the merger, Staples Inc. and Office Depot Inc's merger would have resulted in Office Depot's CEO collecting $39 million

Similar Terms

• Golden Handshake
• A contract clause wherein the employer provides a significant severance package to the employees who have lost their jobs
• Golden Coffin
• A death benefit package awarded to the heirs of high-ranking executives who pass away during employment
• Silver Parachute
• Special compensation for specific employees when their position becomes redundant in the company