Golden Parachute definition

Golden parachutes refer to contractual clauses that provide significant severance packages should the employment relationship be terminated. Traditionally golden parachutes refer to termination as a result of mergers and acquisitions, although recently the term has come to mean termination for any reason, which has historically referred to golden handshakes

Proponents of golden parachutes and golden handcuffs say they help attract the best candidates. Opponents say they can create perverse incentives whereby the executive is biased towards a company sale, even if the decision is not in the best interests of the company, in order to reap the benefits – this is linked to the principal-agent problem which is inherent to the employer-employee relationship. 

Golden handcuffs are a third common form of executive incentive.


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