What is a golden parachute?
If you are hired at the highest level of powerful position, your employment contract usually has several statements about what types of benefits you can expect if your employment is terminated. This provision in the contract is called a golden parachute because they will effectively provide employees of soft, safe and valuable “landing” if they lose their work. They can be offered in many different circumstances and the benefits of release can be extremely lucrative. If enough employees in the upper layers of the company have the possibility of gold parachutes in its contracts, it may be discouraged by another company from an attempt to connect or take over business. It can cost too much money to provide these benefits for many employees.
Typical benefits in Golden Parachot are allowed to allow employees to own or buy a huge amount of shares at a reduced rate and provide employees generous cash or severance pay. Under certain circumstances, the golden parachute may include paying over a million dollars and provides the type of what toIt calls perverted motivation . This is a type of motivation with unintended consequences. In this case, there is hope that Golden Parachutes will discourage enemy takeover as a result.
On the other hand, it can be argued that the unintended consequence of gold parachutes is the possibility that the executives could facilitate the takeover of their company so that they could benefit from receiving attractive payouts and stock options. These provisions, which define final benefits, must be precisely formulated and many claim that in some cases they do not define sufficiently and people who do not have the rights to pay. They do not have to take into account the eligibility factor. If the company has to terminate someone's work due to lack of competencies, the person can still obtain gold parachute payments depending on the exact wording in his contract.
Investors can be frustrated by the possibilities of gold parachutes for this particular reason. If the competences employIt is not mentioned as an important part of the severance pay, the company can lose money by providing parachutes for executives. Lower level employees can also pay for these “parachutes” when they lose their jobs if the company has to reduce expenses due to paying a large severance pay for an incompetent CEO.
Gold parachute should not be confused with golden handshake. This is a related term, and they are usually other bonuses or severance pay to encourage long -term workers to retire faster. For this, they will get better retirement options and clean their way for the company to hire workers at a lower Pay rate.