Over the past two decades, there have been many widely known recipients of golden parachutes. Former British Petroleum CEO Tony Hayward received $1 million, with a pension of nearly $12 million, after being fired for “misbehaviour” following the Deepwater Horizon oil spill in 2010. The employment contract of Carly Fiorina, former president and CEO of Hewlett Packard, allowed her to obtain more than $65 million after her dismissal in 2005. She lost her job because of performance issues. The term “golden parachute” was first used in 1961. Charles C. Tillinghast Jr., former president and CEO of Trans World Airlines, was recognized as the first gold parachute recipient when the company attempted to remove control of Howard Hughes. In the event that Hughes took control of the company and fired Tillinghast, Tillinghast gave a clause in its contract that would provide him with a considerable amount of money if he lost his job. The main objective of golden parachutes in employment contracts is to recruit high-level executives. In addition to more ordinary incentives such as basic compensation, stock options and bonuses, the inclusion of a golden parachute is an effective way to attract new executives to a company.
These clauses may come into effect in the event of a regular dismissal or, in the event of a company merger, in the event that an executive loses his or her job. And then there`s the golden handshake. It looks like a golden parachute, since it offers a redundancy package to a manager if he finds himself unemployed. While both concepts describe the redundancy packages granted to such a manager at the end of the duties, a golden handshake continues to include severance pay for retired executives. Many severance agreements contain a language that limits payment to 299 per cent of the average salary to ensure that the parachute payment does not trigger tax penalties. Effective limits convert all non-liquidable payments, such as extended insurance benefits. B, in fixed dollars to reduce administrative complexity and the risk of accidental payment. If a company decides to pay more than the threshold, it could also increase the payment to cover the tax fine. Proponents of golden parachutes argue that parachutes have advantages for shareholders: the contract contains clear language about the conditions under which a golden parachute applies. The conditions can be so difficult to weigh in favour of the employee that it almost seems that dismissal can come as good news. Some clauses apply to an employee when he or she is terminated as a result of a merger.
Gold parachutes have benefited businesses and individuals, but they have also created some controversies.