Silver Parachute

In finance, the term silver parachute denotes a binding agreement between a company and its non-executive employees which guarantees the employees a monetary bonus in the event that they lose their job due to a change in corporate ownership.

Silver parachutes are used to make prospective target companies unattractive to prospective acquiring companies by making the cost of takeovers and restructuring prohibitive.

Example: A company has binding agreements with its 500 employees which guarantee each employee a 50,000 Swiss franc bonus in the event that they lose their job as the result of a change in the company’s ownership. An acquirer looking to take over the company and let 200 of its employees go would have count on 10 million francs of the target company’s assets being used to pay employee bonuses during the restructuring.

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