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What is a golden parachute?

Golden parachute

A golden parachute is an exit package of benefits given to high-level employees when they're let go from the company, usually due to a merger or takeover. These benefits range from bonuses, shares in the company and, of course, highly lucrative severance pay.

Where have you heard about golden parachutes?

In early 2017 it was reported that the investment company Goldman Sachs was paying its former president and chief operating officer (COO), Gary Cohn, a $100 million golden parachute payment when he left the Wall Street firm to become an adviser to Donald Trump.

Although this particular golden parachute wasn't as part of a merger or takeover it is still considered a golden parachute. This is because Cohn had a 'conflicted employment' clause in his contract that would come into play if he ever took a job with the US government.

What you need to know about golden parachutes.

The use of golden parachutes is often debated. Some believe it's a good way to attract talent, particularly in merger-prone industries. Additionally, supporters believe that these benefit packages allow executives to remain objective if the company is involved in a takeover or merger.

However, those who argue against golden parachutes state that executives are already well-rewarded and should not be compensated for being terminated. Opponents also argue that executives may not act in the best interest of the company as they could use the heavy costs associated with golden parachutes as a tool to discourage a takeover. But, then again, many people who disagree with golden parachutes cite that the associated costs are small when compared with the takeover costs and therefore have little impact on the outcome of the takeover attempt.

Find out more about golden parachutes.

As well as receiving a golden parachute, employees can sometimes also receive golden handcuffs or a golden handshake.

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