Golden Parachute

In finance, the term golden parachute refers to a binding agreement between a company and one of its executives which guarantees the executive a large bonus in the event of their losing their job after a takeover.

The sums involved in a golden parachute agreement are typically disproportionately large in relation to the company’s assets. This serves to make the company less prone to hostile takeovers by reducing its financial attractiveness to potential acquirers.

Example: A company has an agreement with its CEO which promises them a 20-million-Swiss-franc bonus if they lose their position as the result of a corporate takeover. If an acquiring company were to take over that company and replace its CEO, they would have to count on 20 million francs of the target company’s assets being used to settle the golden parachute agreement.

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