Serving Central Ohio Since 1983

When does a severence package become a golden parachute?

On Behalf of | Dec 8, 2022 | Firm News

The term golden parachute does not have an exact definition. Usually, the concept applies to executives who lose their jobs from a buyout or merger. No exact number or benefits package qualifies as a golden parachute, but there are usually tax implications and exclusive benefits such as stock options.

According to Britannica, most golden parachutes only apply to chief executive officers or other executives. However, some companies offer generous severance packages to employees outside of C-level executives if there is a change of control in the company.

Golden parachute benefits

You should know if your company offers a golden parachute severance package because it will be a part of your contract. Sometimes, the benefits go beyond the events of a takeover, and executives receive lucrative severance packages even if the company fires them or they resign. Common benefits of golden parachute packages include the vesting of retirement accounts, continued health insurance, payment for legal costs and the extension of pension benefits in perpetuity.

Arguments for and against

There are many critics of golden parachute packages. Many executives who neglect their fiduciary responsibilities still receive a generous severance package after termination. However, the argument for utilizing golden parachutes is that they discourage corporate takeovers due to the increased cost of paying off the executives. It is not clear that the elevated prices of severance packages substantially impact takeovers, though.

Golden parachutes are for executives who lose their jobs to a business acquisition. They are not always popular, but some companies find them useful to avoid predatory buyouts from larger corporations.