The Golden Parachute Option For Ceo's

2314 words - 10 pages

Imagine being in a world where people are paid in cash bonuses, stock options, or generous severance pay when fired from their job due to a company merger, are asked to leave, or choose to retire. This happens to be a reality for many CEO’s and top executives of companies. We live in an economy where mergers and take over’s have become common, and to allow this option for the highest paid employees of a company is arguably unfair. While researching golden parachutes, I formed questions due to the circumstances surrounding this executive option. For example, why should CEO’s, who live very comfortably, be given a compensation package for losing their position due to a company merger or retirement when employee and shareholder’s futures are at stake? Is it fair for the rich to get richer when numerous employees below top executives are dealt the same fate from a merger and shareholders’ investments are at risk but neither receive a form of additional compensation? Of course, there’re those who support the issuance of golden parachutes, arguing they can persuade a possible company merger to not take place due to the costs associated with a top executives golden parachute package. Another supporting point for golden parachutes is, they can make it easier for higher up executives, like CEO’s be absorbed into the future merged company. I will be addressing the point of whether CEO’s and other executives deserve to be awarded a Golden Parachute option by their company. As well as a brief background of Golden Parachutes and my stance on them. They’re a very important part of our growing economy and will always be considered in a merger/takeover if awarded to executives.
Golden parachutes, first formed in the 1960’s, were designed to protect senior executives’ compensation if their company was to be purchased, salaries lowered, or if they were to lose their job from a merger. An executive losing their job is the most common reason for a golden parachute to be exercised. These compensation packages range from “...the base salary, bonuses, pension benefits, and fringe benefits such as medical insurance, life insurance, stock options, and stock buy- back plans.” Originally the most common golden parachute was in the form of a “…lump-sum payment of three years’ salary…” , if the events taking place were covered within a senior executives package. The rapid growth of golden parachutes within companies was attributable to the 1980’s increase in company mergers and takeovers, causing many top executives to feel as though their jobs were somewhat unsecure. As a result golden parachutes gave more assurance to top executives in keeping their position after an acquisition took place, because the reality of losing their job right due to a take over was always present. In the journal How Golden Parachutes Unfolded: Diffusion and Variation of a Controversial Practice the three authors, Peer Fiss, Mark Kennedy, and Gerald Davis, expressed this notion in saying, “As a...

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