What is a Golden Parachute?

"Golden Parachute" refers to the provision in the employment contract to compensate managers who have lost their jobs in accordance with the terms of change of company control. Generally, when employees are forced to leave (not because of their own work), they can receive a large sum of severance payments, which can promote management to accept changes in company control, thereby reducing conflicts of interest between management and shareholders. And management's transaction costs to resist such changes.

Golden parachute

"Golden" means that compensation is generous, and "parachute" means that executives can smoothly transition through changes in mergers and acquisitions. Because this strategy is bound to make the acquirer "

Determination of grantees

The "Golden Parachute" is granted to foreign senior management personnel, such as general manager or director-level employees. However, since the "elderly problems" in Chinese enterprises are mainly state-owned enterprises, there are many people who have made important contributions in the process of corporate growth, so the scope of grants should be relatively relaxed, including entrepreneurs or companies that have played important roles Business backbone, technology backbone, etc.

Form of grant

The "golden parachute" in Western countries mainly includes one-off contract termination compensation, allowances and stock options. In China, most business leaders receive a pension. According to China's current retirement system, a certain monthly pension is an inevitable choice. The rest can include one-time bonuses or stock options.

Restriction on grant amount

The United States has set a limit on the amount of "golden parachute" in its "Internal Revenue Act", which is the average value of the salary of the grantee for each year within 5 years before the "emergency". If this limit is exceeded, a 20% tax will be levied on the excess, and at the same time the company will lose tax relief equivalent to the excess granted. Since the wage income of Chinese enterprise veterans is far lower than that of western developed countries, the limit on the amount should be appropriately relaxed, and the monthly pension should be no less than the salary at the time of his reign, and should be taken into account The level of domestic similar enterprises. The one-time allowance should also be limited to 2-3 times its annual income, plus the stock options, the total amount should be based on the business situation of the veteran when he was in office, the length of the veteran's working time, and the contribution of the veteran to the enterprise Measure.

At present, the "Golden Parachute" program has been applied in China. Taking Shanda Networks as an example, the options granted by Chen Tianqiao to Tang Jun belong to the nature of "golden handcuffs" to attract talents. The "golden parachute" program for veterans. We hope that in the near future, more enterprises can thoroughly solve the problem of poor operating conditions of enterprises due to the asymmetry of operator's pay and return through a series of constraints and incentives such as the "Golden Parachute" program.

When formulating the "Golden Parachute" plan, the company must pay attention to other areas, such as enhancement plans for retirement benefits, medical treatment for executives, continuation of benefits of life insurance, and a reasonable definition of changes in control.

Although we have spent most of the previous pages introducing the impact of the "gold parachute" on shareholders' interests and M & A transactions, in the end, we want to emphasize that the scientific and reasonable "gold parachute" plan is attracting and retaining high performance Management also plays a role that cannot be ignored.