Golden parachute

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A golden parachute is a clause (or several) in an executive's employment contract specifying that they will receive certain large benefits if their employment is terminated. Sometimes it is only in the case that the company is acquired and the executive's employment is terminated as a result, but not always. These benefits can be severance pay, cash bonuses, stock options or a combination of the items. The benefits are designed to reduce perverse incentives.

The use of golden parachute have caused some investors concern since they don't specify that the executive had to perform successfully to any degree. Their concern is understandable since many golden parachute clauses can promise benefits well into the millions. In some high-profile instances, some executives cashed in their golden parachute while under their stewardship their companies lost millions and thousands of workers were laid off as a result.

See also: golden handshake

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