Golden parachute

A golden parachute is an agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. Most definitions specify the employment termination is as a result of a merger or takeover, also known as "Change-in-control benefits", but more recently the term has been used to describe perceived excessive CEO (and other executives) severance packages unrelated to change in ownership (also known as a golden handshake). The benefits may include severance pay, cash bonuses, , or other benefits.

The first use of the term "golden parachute" is credited to a 1961 attempt by creditors to oust Howard Hughes from control of Trans World Airlines. The creditors provided Charles C. Tillinghast Jr. an employment contract that included a clause that would pay him money in the event that he lost his job.

The use of golden parachutes expanded greatly in the early 1980s in response to the large increase in the number of takeovers and mergers.

In Europe the highest "change-in-control benefits" have been for French executives, as of 2006 according to a study by the Hay Group human resource management firm. French executives receive roughly the double of their salary and bonus in their golden parachute.

News reference volume of the term "golden parachute" spiked in late 2008 during the global economic recession, and 2008 US Presidential Debates. Despite the poor economy, in the two years before 2012 a study by the professional services firm Alvarez & Marsal found a 32% increase in the value of "change-in-control benefits" provided to US executives. In late 2011, USA Today reported several CEO retirement packages in excess of $100 million, "raising eyebrows even among those accustomed to oversized payouts".

In the 1980s, golden parachutes prompted shareholder suits challenging the parachutes' validity, SEC "termination agreement disclosure rules" in 1986, and provisions in the Deficit Reduction Act of 1984 aimed at limiting the size of future parachutes with a special tax on payouts that topped three times annual pay. In the 1990s in the United States, some government efforts were made to diminish "change-in-control benefits". As of 1996, Section 280G of the Internal Revenue Code denies a corporation a deduction for any excess "parachute payment" made to a departing employee, and Section 4999 imposes on the recipient a nondeductible 20% excise tax, in addition to regular income and Social Security taxes. The idea being the expenses are in excess of reasonable compensation for personal services

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