In Depth
A golden parachute is a set of financial benefits guaranteed to an executive in the event of termination following a change of control, typically a merger, acquisition, or hostile takeover. These packages can include accelerated vesting of stock options and restricted stock, cash severance payments (often two to three times annual base salary plus bonus), continuation of health and retirement benefits, and tax gross-up payments. Golden parachutes originated in the 1980s during the hostile takeover era as a way to attract and retain executives who might otherwise resist working for companies perceived as takeover targets. Proponents argue that golden parachutes serve shareholders by removing the executive's personal financial incentive to resist a value-creating acquisition. Without such protection, a CEO might oppose a merger that would benefit shareholders but cost the CEO their job. Critics counter that golden parachutes can be excessively generous and may insulate executives from the consequences of poor performance that made the company a takeover target in the first place. The SEC requires detailed disclosure of potential change-of-control payments in the proxy statement, including estimated dollar values under various termination scenarios. Section 280G of the Internal Revenue Code imposes a 20% excise tax on "excess parachute payments", those exceeding three times the executive's base amount, and Section 162(m) denies the company a tax deduction for such payments. Say-on-pay votes now frequently focus on golden parachute provisions, and proxy advisory firms routinely flag excessive severance arrangements.