A golden parachute is a type of severance compensation paid out to company executives after termination of employment.
A golden parachute is an agreement between a company and its executives that provides certain financial benefits in the event that the executive is terminated from their position. The term “golden parachute” often refers to the severance package that is paid to the executive, which can include items such as a lump sum payment, extended healthcare coverage, or other benefits.
Golden parachutes are typically offered to key executives or high-level employees who are considered essential to the company’s success. These individuals may have difficult-to-replace skills or knowledge, or they may be essential to the company’s operations in some other way.
There are several reasons why companies may offer golden parachutes to their executives. One reason is to help attract and retain top talent. Another reason is to provide financial protection for the executive in the event that they are terminated from their position.
The specific benefits that are offered as part of a golden parachute agreement will vary depending on the company and the individual executive. However, some common benefits that may be offered include severance pay, extended healthcare coverage, and other financial incentives.
The cost of a golden parachute agreement will typically be borne by the company’s shareholders. In some cases, the financing for these agreements may come from the company’s general funds or from special insurance policies that have been purchased by the company. The impact on shareholders will depend on how much the golden parachute agreement costs and how well the company is performing financially.