Golden Parachute
A
golden parachute is a clause in the contract of a
CEO or other executive officers of a corporation, that if the
corporation is acquired it pays them a certain amount of money, or stock options. This payment is designed to counter the
perverse incentive that a CEO has to not pursue being acquired by another corporation (because although being acquired might be good for the company and for the shareholders, it could cause the CEO to be fired). This payment is supposed to make the CEO impartial.
These payments cause controversy for several reasons. One being that often a company is a target for being acquired because it is performing poorly and that poor performance causes the
market capitalization, or cost to purchase the company, to be lower. If purchased, the CEO would receive a large sum of money even though he had arguably done a bad job of running the company previously.
CalPERS recently announced they will be using their shareholder voting power to fight golden parachutes.
Golden parachutes are one element of many issues within the field of
executive compensation.
See also: golden handshake
