Term of the Day - 6 March 2024

Today’s Term is “Golden Parachute”.

A "golden parachute" is a financial compensation and benefit package that is provided to top executives, typically CEOs and other high-ranking officials, in the event of their termination or departure from a company due to a merger, acquisition, or corporate takeover. The term "golden parachute" reflects the lucrative and generous nature of the benefits conferred upon these executives.

The purpose of a golden parachute is to secure the loyalty and commitment of key executives during times of corporate transition and uncertainty. It provides a form of financial security and incentive for executives to remain with the company and focus on maximizing shareholder value, even in the face of potential changes in corporate leadership or ownership structure.

Golden parachutes often include various components such as cash payments, accelerated vesting of stock options, bonuses, pension enhancements, continuation of health and insurance benefits, and other perks. These benefits are negotiated and outlined in the executive's employment contract or severance agreement and are triggered under specific circumstances outlined in the contract, such as a change in control of the company.

While golden parachutes are intended to retain talent and ensure smooth transitions during corporate changes, they have been subject to criticism for being excessive and serving the interests of executives rather than shareholders or employees. However, proponents argue that they are necessary to attract and retain top executive talent in a competitive business environment.