Can anyone explain to me the concept of the "golden parachute?" - Tilted Forum Project Discussion Community

FuglyStick · 08-08-2010, 05:40 PM

Hewlett-Packard's CEO Mark Hurd is resigning in lieu of a sexual harassment claim. His severance package is reportedly in excess of $35 million, including a cash payment of $12.2 million.

This thread isn't about Mark Hurd, or the circumstances that led to his resignation. What I want to know is, what is the reasoning behind these huge "golden parachute" packages when a CEO resigns or is drummed out? By all accounts, Hurd actually did a very good job piloting HP, but it doesn't seem to matter--CEOs that leave their companies in shambles seem to get similar huge paydays when they are run off. Why would companies agree to these terms? Are they insuring that CEOs won't run to competitors with trade secrets? Are competent people so hard to find that companies must acquiesce to these packages to secure the leadership they need? Why do companies agree to this, making failure as profitable, or nearly as profitable, as success? Where's the motivation for a CEO to perform?

Baraka_Guru · 08-08-2010, 05:52 PM

Severance pay is common in general; golden parachutes are not.

Golden parachutes in particular are there for a reason: to keep executive positions marketable. If HP decides tomorrow to cap their CEO severance package to $25,000, they're going to have a tough time filling the position with candidates they'd like to consider. This is because all of their competitors will still have their golden parachutes. HP would only have a regular one---probably white nylon.

Plan9 · 08-08-2010, 05:52 PM

Severance pay. Uh-huh. Enough money to buy a mansion on Mars.

Fugly: And by competent you mean "intelligent yet a total dirtbag?" I see that as the case. These guys are smart... so smart that they see it as more profitable to build up a certain level of success and then dump the clutch when it best suits them so they can escape to greener / newer pastures.

Baraka_Guru · 08-08-2010, 05:57 PM

Quote:

Originally Posted by Plan9

Severance pay. Uh-huh. Enough money to buy a mansion on Mars.

It should be noted that severace pay isn't only to say something like, "Kay bye! Here's a parting gift!"

In most circumstances, it's also meant to cover pay and benefits for a long enough period for the individual to find equivalent work.

In CEO circumstances, I think it's to stipulate that they are not permitted to sue the company unless they return the severance money.

It's simple, really.

Plan9 · 08-08-2010, 06:00 PM

I apologize. That was just my typical useless snarky commentary... this time on the exorbitant pay of CEOs and the exponential jumps between management, uber management, and that smarmy figurehead with the veneers that smokes the cigars and plays golf for 23 days of the month.

FuglyStick · 08-08-2010, 06:18 PM

Quote:

Originally Posted by Baraka_Guru

Severance pay is common in general; golden parachutes are not.

Golden parachutes in particular are there for a reason: to keep executive positions marketable. If HP decides tomorrow to cap their CEO severance package to $25,000, they're going to have a tough time filling the position with candidates they'd like to consider. This is because all of their competitors will still have their golden parachutes. HP would only have a regular one---probably white nylon.

So, basically, the real reason that executives are given these fat going away prizes is because everyone else is doing it.

Baraka_Guru · 08-08-2010, 06:19 PM

Just because I'd be over 200 years old before I'd make the same amount with my current salary doesn't make it exorbitant.

---------- Post added at 10:19 PM ---------- Previous post was at 10:19 PM ----------

Quote:

Originally Posted by FuglyStick

So, basically, the real reason that executives are given these fat going away prizes is because everyone else is doing it.

No, there are other reasons too, as I stated above. But, yes, paying market severance pay is an issue.

FuglyStick · 08-08-2010, 06:28 PM

Well, the "no sue" thing comes closer, in my mind, to a real reason for it. To my mind, the amount of money these CEOs get to keep off the soup line while they look for a new job sounds a bit excessive. I mean, if they are so in demand that they can stipulate these large settlements when they leave a company, then how hard would it be for them to find another position? Unless we have more CEOs than we do positions for CEOs. And if that's the case, wouldn't the laws of supply and demand mean that they would earn less across the board?

dippin · 08-08-2010, 06:32 PM

The "theoretical" reason for it is that these packages come with restrictions to prevent someone who was just recently fired from being hired by a competitor, etc. So it would be the payment that came with those restrictions.

In reality, a great part of it is that CEOs can pack board of directors with their friends and get away with it.

Baraka_Guru · 08-08-2010, 06:34 PM

CEO isn't the only executive position these guys will fill.

It's also difficult to find positions on professional sport teams.

It's not just about available positions; it's about making enough money available to attract the talent you want.

FuglyStick · 08-08-2010, 06:48 PM

Quote:

Originally Posted by Baraka_Guru

CEO isn't the only executive position these guys will fill.

It's also difficult to find positions on professional sport teams.

It's not just about available positions; it's about making enough money available to attract the talent you want.

Okay, BG, I see what you're getting at, and I thought of the sports analogy as well. But that assumes a few things. First, that an executive (to avoid just singling out CEOs) that can do his job well, consistently, is as rare as, say, an Albert Pujols, and that no one else can step into that position and do it as well. Second, Pujols must perform to make his salary. If he was to suddenly retire, he's not given a bonus.

I am probably in danger of being thrown in the paddy wagon and hauled of to Tilted Paranoia, but "golden parachutes" sound like retroactive extortion to me. It's as if everyone who has a big oak desk in a top floor office got together and decided to tack on "golden parachutes" as a means to sweeten an already brimming over pot.

Baraka_Guru · 08-08-2010, 06:53 PM

But the truth remains that sports performance isn't guaranteed performance. A player could hit a slump, lose a magic touch, get injured, etc.

But it's also true that CEO performance is more unpredictable than sports performance. This is because there are far, far more variables at play in the corporate world than there are in a baseball game.

Being a CEO must be a tough gig. I can't imagine the pressure that comes with it, regardless of the money.

However, I'll also point out that we're focusing on the CEOs we hear about (the fired, extremely highly paid ones) and not the ones we don't hear about. Do you know how many CEOs there are in Corporate America?

FuglyStick · 08-08-2010, 06:58 PM

Quote:

Originally Posted by Baraka_Guru

But the truth remains that sports performance isn't guaranteed performance. A player could hit a slump, lose a magic touch, get injured, etc.

But it's also true that CEO performance is more unpredictable than sports performance. This is because there are far, far more variables at play in the corporate world than there are in a baseball game.

Being a CEO must be a tough gig. I can't imagine the pressure that comes with it, regardless of the money.

However, I'll also point out that we're focusing on the CEOs we hear about (the fired, extremely highly paid ones) and not the ones we don't hear about. Do you know how many CEOs there are in Corporate America?

I have no idea how many CEOs there are in corporate America. A ton. And most do not get a huge bonus for resigning/getting canned.

There are probably sound reasons for "golden parachutes;" I just have a hard time comprehending those reasons, I reckon.

Baraka_Guru · 08-08-2010, 07:08 PM

Quote:

Originally Posted by FuglyStick

I have no idea how many CEOs there are in corporate America. A ton. And most do not get a huge bonus for resigning/getting canned.

There are probably sound reasons for "golden parachutes;" I just have a hard time comprehending those reasons, I reckon.

I think the issue for a lot of people (especially me) is a matter of scale. We see all of those dollars being dumped on a single individual all at once for being fired. And this after he was making millions year to year. Give me $1 million, and I could retire comfortably. This guy got how much? And he's probably going to try to go back to work.

If it helps you get any sort of perspective on this, HP's Q1 net income was $2.2 billion.

Cynthetiq · 08-08-2010, 08:14 PM

Golden parachutes are what they are because of the risk involved in ACCEPTING the job. One doesn't know that it's a fit until they actually come to take the job and LEAVE the job they may be currently in.

I've seen executives that left Disney to come to work in our place, only to dismissed within 8 months of a 1 year contract.

As far as when being let go, it's also because of the same thing. If the company decides that it's not a good fit, it takes time and resources to find a new position.

Most of the executives are hired to help move the stock price. If the stock price doesn't move, you want to get rid of the individual as quickly and painlessly as possible. Severance packages ensure that you can rid someone from the position without fear of litigation.

Xerxys · 09-02-2010, 10:07 PM

Found another reason why they pay large stipends for leaving. It's part of their job. It gets better, the money probably came from you, in the event you were laid off ...

Quote:

CEOs that lay off workers earn more: study
By Steve Goldstein, MarketWatch

WASHINGTON (MarketWatch) -- Chief executives of the 50 firms that laid off the most workers since the onset of the economic crisis earned 42% more than the average pay for an S&P 500 company, according to a study released Wednesday.

The left-wing Institute for Policy Studies found that the CEOs of the job-cut companies on average took home nearly $12 million in 2009, above the $8.5 million brought in by the average CEO of an S&P 500 company. The study found that 72% of the announced layoffs came at a time when the company was reporting positive earnings.

"This reflects a broader trend in Great Recession Corporate America: squeezing workers to boost profits and maintain high CEO pay," said the study.

Reuters
Fred Hassan, ex-CEO of Schering-Plough Corp.

In terms of total compensation, ex-Schering Plough chief Fred Hassan earned $49.65 million in 2009, as his company and Merck (MRK 35.35, -0.27, -0.76%) laid off a combined 16,000 due to their merger.

Johnson & Johnson's (JNJ 58.61, +0.32, +0.55%) William Weldon was second on the list with $25.57 million in pay at a company that laid off 8,900, and former Hewlett-Packard (HPQ 39.68, +0.47, +1.20%) CEO Mark Hurd brought home $24.2 million after announcing 6,400 jobs would go.

Rounding out at the top ten was Walt Disney's (DIS 33.91, +0.40, +1.19%) Robert Iger, who brought home $21.58 million; IBM's (IBM 125.04, -0.73, -0.58%) Samuel Palmisano, who brought home $21.16 million; AT&T's (T 27.40, +0.05, +0.18%) Randall Stephenson, who earned $20.24 million; Wal-Mart Stores' (WMT 51.76, +0.56, +1.09%) Michael Duke, who earned $19.23 million; Ford Motor Co.'s (F 11.71, +0.10, +0.86%) Alan Mulally, who took home $17.92 million; United Technologies' (UTX 67.44, +0.07, +0.10%) Louis Chenevert, who brought home $17.9 million; and Verizon Communications' (VZ 30.11, -0.15, -0.50%) Ivan Seidenberg, who brought home $17.49 million.

The group also maintains heavy layoffs are bad business, citing a University of Colorado study concluding that companies that have less than 5% staff turnover per year tend to outperform companies.

That said, the outsized pay packages didn't necessarily detract from share price performance, at least over one year. According to data tabulated by S&P's Capital IQ on behalf of MarketWatch, six of those companies outperformed the average S&P 500 return of 25.92% in 2009, including the 350.91% surge for Ford and the 67.39% gain for Schering-Plough. Wal-Mart's -0.5% return in 2009 was the worst of the ten layoff-heavy firms.

Bailout pay

The study also noted that five of the top 50 layoff leaders received bailout money, including American Express' (AXP 40.88, -0.19, -0.46%) Kenneth Chenault, who took home $16.8 million after cutting 4,000 positions. And it pointed out in the financial sector, companies gave big payouts to lower-ranking high-level executives, such as the $29.9 million that Bank of America's (BAC 13.28, +0.07, +0.55%) Thomas Montag brought in as president of global banking and markets, and the $19.6 million took home by William Winters as co-CEO of the investment bank of J.P. Morgan Chase (JPM 38.16, +0.42, +1.11%) .

The group is pushing for legislation that would either incentivize companies that don't compensate executives more than 100 times the income of the company's lowest-paid worker, or for Congress to revisit a proposal that passed the Senate last year that would have capped total pay for employees at bailout companies at $400,000.

Steve Goldstein is MarketWatch's Washington bureau chief.

>>LINK<<

Quote:

Originally Posted by Cynthetiq

Most of the executives are hired to help move the stock price. If the stock price doesn't move, you want to get rid of the individual as quickly and painlessly as possible. Severance packages ensure that you can rid someone from the position without fear of litigation.

Good god, that explains SO much.

I have another question also, what do you mean by "good fit"? I hacve seen managers and supervisors get hired and fired for "shortcomings on their performance" which is total bollocks because I was on one of the supervisors team and I know my stats alone brought the entire team average up to the top five in the entire department. Corporate bureaucracy is difficult to understand and that much more harder to navigate.

filtherton · 09-03-2010, 04:26 AM

Golden parachutes exist because executives serve on corporate boards of directors, which determine these compensation packages, and thus have an incentive to make sure executives are compensated in the most obscene ways possible.

They are an example of market failure.

mrmacq · 12-11-2010, 07:43 PM

Quote:

Originally Posted by filtherton

Golden parachutes exist because executives serve on corporate boards of directors, which determine these compensation packages, and thus have an incentive to make sure executives are compensated in the most obscene ways possible.

They are an example of market failure.

welcome to extreme capitalism
capitalism run amok
anything for the bottom line
question is
when those affording can no longer afford
what happens then?
50s single income
70s need dual income
90s getting tough
'00s
(call it 2010)
complete reset
time for a meltdown
country's in complete disorder
due to these piranha
yet we still hear
"its for the common good"

bullshit

its for sustaining the status quo

Cynthetiq · 12-11-2010, 10:27 PM

Quote:

Originally Posted by mrmacq

welcome to extreme capitalism
capitalism run amok
anything for the bottom line
question is
when those affording can no longer afford
what happens then?
50s single income
70s need dual income
90s getting tough
'00s
(call it 2010)
complete reset
time for a meltdown
country's in complete disorder
due to these piranha
yet we still hear
"its for the common good"

bullshit

its for sustaining the status quo

Is it really sustaining the status quo? Take a look at how much you spend for incidentals and discretionary spending before you talk about sustaining the status quo. You can live just like people did back in the 50's and 70's.

Back in the 50's people didn't spend $150 a month on cable TV. TV was free. It still is if you use over the air aerial antennae. That's $1,800 a year. What you need to be able to watch Sookie and all her crazy antics? Or hear Jon Stewart tell you about the Fear Rally?

Back in the 70's you didn't spend $150 a month on a family plan for telecommunications. You had one phone and maybe it cost you $20 a month. Calls to neighboring hamlets, villages, and counties may be toll and you'd pay a small fee to access them, which may be more that calling intrastate or even interstate. International? $1-$5 a minute if you called person to person on a trunk line. Now I can call London for as little as $.05 a minute. Landlines now cost over $60 a month PLUS everyone has a cellphone at about $150 a month for a family plan for 4. $2,520 a year.

The rise of casual dining Applebee's, Chili's, Red Lobster et. al. are put out there because they make money. People don't eat dinner at home as often as they did in the 50's and 70's. Having grown up in the 70's I can tell you we went out to dinner 1 time a week. I was recently at Red Lobster and for 1 mixed drink, 1 soda, 1 mussels appetizer, and 2 entrees it was $90 including a 15% gratuity. I was quite shocked since I haven't been to a Red Lobster in many years and I could have gotten much better quality food and service from a local place here in NYC for 1/2 of that price.

Darden Restaurants who owns Red Lobster, Olive Garden, Long Horn Steakhouse, and other casual dining restaurants had a revenue of $7.22 billion in FY08. Projected annual spend for middle incomes is about $1,500. McDonald's in comparison had a revenue of $22.6 billion.

I'm not even going to start on durable goods that people purchase like computers, TVs, refrigerators etc. Many people I know don't have just one of these but have multiples. Back in the 50s through the 70s it was common to just have one if you had any at all.

mrmacq · 12-16-2010, 08:23 PM

Quote:

Originally Posted by Cynthetiq

Is it really sustaining the status quo? Take a look at how much you spend for incidentals and discretionary spending before you talk about sustaining the status quo. You can live just like people did back in the 50's and 70's.

Back in the 50's people didn't spend $150 a month on cable TV. TV was free. It still is if you use over the air aerial antennae. That's $1,800 a year. What you need to be able to watch Sookie and all her crazy antics? Or hear Jon Stewart tell you about the Fear Rally?

Back in the 70's you didn't spend $150 a month on a family plan for telecommunications. You had one phone and maybe it cost you $20 a month. Calls to neighboring hamlets, villages, and counties may be toll and you'd pay a small fee to access them, which may be more that calling intrastate or even interstate. International? $1-$5 a minute if you called person to person on a trunk line. Now I can call London for as little as $.05 a minute. Landlines now cost over $60 a month PLUS everyone has a cellphone at about $150 a month for a family plan for 4. $2,520 a year.

The rise of casual dining Applebee's, Chili's, Red Lobster et. al. are put out there because they make money. People don't eat dinner at home as often as they did in the 50's and 70's. Having grown up in the 70's I can tell you we went out to dinner 1 time a week. I was recently at Red Lobster and for 1 mixed drink, 1 soda, 1 mussels appetizer, and 2 entrees it was $90 including a 15% gratuity. I was quite shocked since I haven't been to a Red Lobster in many years and I could have gotten much better quality food and service from a local place here in NYC for 1/2 of that price.

Darden Restaurants who owns Red Lobster, Olive Garden, Long Horn Steakhouse, and other casual dining restaurants had a revenue of $7.22 billion in FY08. Projected annual spend for middle incomes is about $1,500. McDonald's in comparison had a revenue of $22.6 billion.

I'm not even going to start on durable goods that people purchase like computers, TVs, refrigerators etc. Many people I know don't have just one of these but have multiples. Back in the 50s through the 70s it was common to just have one if you had any at all.

not sure why the computer told me there was nothing more on this thread
no matter
i tripped over it aways

your talking to the wrong man
ive been relentlessly and consistently
weening myself off this "mass" keep up to the Joneses
telephone by icall
cable by internet
heat with wood
(discarded by those new homes going up)
ive even got them delivering
so high is the cost of doing the right thing
and recycling it
(guess they sorta are eh?)
now i figure if i install a steam plant above the wood stove
the turbine it turns
will produce electricity
and then theres the solar panels
converting
(including perhaps h2o into h and two oS)
future thoughts....

heat sumps anyone?
large south facing windows
and a stone-ish floor are desired

grow your own vegs
eye that cat that dumps there
(an arrow is reuseable)

raise a few chickens perhaps?
nah theyd become pets

off axis · 02-26-2011, 08:10 AM

Severance packages get written into the employment contract of people at the CEO level. Companies sign up to them because they think that the probability of having to let someone go prior to the close of an agreed-upon term is low. There could be a lot of truth to that because the rate at which CEOs are let go doesn't appear to be large.

Zeraph · 03-05-2011, 12:01 PM

Its when you jump out of a plane and there's another person above you. You then pee, the pee goes upward and hits them. Hence, the golden parachute.

audioguru · 03-20-2011, 11:46 PM

Golden parachutes used to be excellent and reasonably nice severance packages.

They have become more like poison pills that are used to accomplish a lot of devious things like letting those interested in hostile takeovers know it will cost them enough to destroy the company satisfying contractual severances due to early termination.

There might be split factions on a board of directors that stacks as many CEO's on their side as possible, so they vote in an obscene severance package as a way to lock their person in for the duration.

There are a lot of reasons severance packages can get ridiculous. If the corporate president is on watch when a public financing event is to take place he might use that opportunity to push for golden parachutes at a time when any public resignation might jeopardize that funding. So he says here is what I want or I resign right now.

The CEO more often than not might know of skeletons in the closet that would be disastrous to the stock value that might give them a leverage for a ludicrous severance.

The most insidious of these is wallstreet and banking industries who have a CEO leaving under felonious conditions and taking a few hundred million or more with them when already being scrutinized for fraud. That's about definitely being able to expose truly prosecutable actions.

citadel · 03-26-2011, 10:00 PM

Quote:

Originally Posted by Cynthetiq

Most of the executives are hired to help move the stock price. If the stock price doesn't move, you want to get rid of the individual as quickly and painlessly as possible.

How do they do that? Just by increasing profitability or what?

Quote:

Originally Posted by Zeraph

Its when you jump out of a plane and there's another person above you. You then pee, the pee goes upward and hits them. Hence, the golden parachute.

08-08-2010, 05:40 PM	#1 (permalink)
FuglyStick WHEEEE! Whee! Whee! WHEEEE! Location: Southern Illinois	Can anyone explain to me the concept of the "golden parachute?" Hewlett-Packard's CEO Mark Hurd is resigning in lieu of a sexual harassment claim. His severance package is reportedly in excess of $35 million, including a cash payment of $12.2 million. This thread isn't about Mark Hurd, or the circumstances that led to his resignation. What I want to know is, what is the reasoning behind these huge "golden parachute" packages when a CEO resigns or is drummed out? By all accounts, Hurd actually did a very good job piloting HP, but it doesn't seem to matter--CEOs that leave their companies in shambles seem to get similar huge paydays when they are run off. Why would companies agree to these terms? Are they insuring that CEOs won't run to competitors with trade secrets? Are competent people so hard to find that companies must acquiesce to these packages to secure the leadership they need? Why do companies agree to this, making failure as profitable, or nearly as profitable, as success? Where's the motivation for a CEO to perform? __________________ AZIZ! LIGHT!

08-08-2010, 05:52 PM	#2 (permalink)
Baraka_Guru warrior bodhisattva Super Moderator Location: East-central Canada	Severance pay is common in general; golden parachutes are not. Golden parachutes in particular are there for a reason: to keep executive positions marketable. If HP decides tomorrow to cap their CEO severance package to $25,000, they're going to have a tough time filling the position with candidates they'd like to consider. This is because all of their competitors will still have their golden parachutes. HP would only have a regular one---probably white nylon. __________________ Knowing that death is certain and that the time of death is uncertain, what's the most important thing? —Bhikkhuni Pema Chödrön Humankind cannot bear very much reality. —From "Burnt Norton," Four Quartets (1936), T. S. Eliot

08-08-2010, 05:52 PM	#3 (permalink)
Plan9 I Confess a Shiver	Severance pay. Uh-huh. Enough money to buy a mansion on Mars. Fugly: And by competent you mean "intelligent yet a total dirtbag?" I see that as the case. These guys are smart... so smart that they see it as more profitable to build up a certain level of success and then dump the clutch when it best suits them so they can escape to greener / newer pastures. __________________ *Whatever you can carry.* "You should not drink... and bake."

08-08-2010, 06:00 PM	#5 (permalink)
Plan9 I Confess a Shiver	I apologize. That was just my typical useless snarky commentary... this time on the exorbitant pay of CEOs and the exponential jumps between management, uber management, and that smarmy figurehead with the veneers that smokes the cigars and plays golf for 23 days of the month. __________________ *Whatever you can carry.* "You should not drink... and bake."

08-08-2010, 06:28 PM	#8 (permalink)
FuglyStick WHEEEE! Whee! Whee! WHEEEE! Location: Southern Illinois	Well, the "no sue" thing comes closer, in my mind, to a real reason for it. To my mind, the amount of money these CEOs get to keep off the soup line while they look for a new job sounds a bit excessive. I mean, if they are so in demand that they can stipulate these large settlements when they leave a company, then how hard would it be for them to find another position? Unless we have more CEOs than we do positions for CEOs. And if that's the case, wouldn't the laws of supply and demand mean that they would earn less across the board? __________________ AZIZ! LIGHT!

08-08-2010, 06:32 PM	#9 (permalink)
dippin Crazy, indeed Location: the ether	The "theoretical" reason for it is that these packages come with restrictions to prevent someone who was just recently fired from being hired by a competitor, etc. So it would be the payment that came with those restrictions. In reality, a great part of it is that CEOs can pack board of directors with their friends and get away with it.

08-08-2010, 06:34 PM	#10 (permalink)
Baraka_Guru warrior bodhisattva Super Moderator Location: East-central Canada	CEO isn't the only executive position these guys will fill. It's also difficult to find positions on professional sport teams. It's not just about available positions; it's about making enough money available to attract the talent you want. __________________ Knowing that death is certain and that the time of death is uncertain, what's the most important thing? —Bhikkhuni Pema Chödrön Humankind cannot bear very much reality. —From "Burnt Norton," Four Quartets (1936), T. S. Eliot

08-08-2010, 06:53 PM	#12 (permalink)
Baraka_Guru warrior bodhisattva Super Moderator Location: East-central Canada	But the truth remains that sports performance isn't guaranteed performance. A player could hit a slump, lose a magic touch, get injured, etc. But it's also true that CEO performance is more unpredictable than sports performance. This is because there are far, far more variables at play in the corporate world than there are in a baseball game. Being a CEO must be a tough gig. I can't imagine the pressure that comes with it, regardless of the money. However, I'll also point out that we're focusing on the CEOs we hear about (the fired, extremely highly paid ones) and not the ones we don't hear about. Do you know how many CEOs there are in Corporate America? __________________ Knowing that death is certain and that the time of death is uncertain, what's the most important thing? —Bhikkhuni Pema Chödrön Humankind cannot bear very much reality. —From "Burnt Norton," Four Quartets (1936), T. S. Eliot

08-08-2010, 08:14 PM	#15 (permalink)
Cynthetiq Tilted Cat Head Administrator Location: Manhattan, NY	Golden parachutes are what they are because of the risk involved in ACCEPTING the job. One doesn't know that it's a fit until they actually come to take the job and LEAVE the job they may be currently in. I've seen executives that left Disney to come to work in our place, only to dismissed within 8 months of a 1 year contract. As far as when being let go, it's also because of the same thing. If the company decides that it's not a good fit, it takes time and resources to find a new position. Most of the executives are hired to help move the stock price. If the stock price doesn't move, you want to get rid of the individual as quickly and painlessly as possible. Severance packages ensure that you can rid someone from the position without fear of litigation. __________________ I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not. What's the best nation in the world? DO-NATION!

09-03-2010, 04:26 AM	#17 (permalink)
filtherton Junkie Location: In the land of ice and snow.	Golden parachutes exist because executives serve on corporate boards of directors, which determine these compensation packages, and thus have an incentive to make sure executives are compensated in the most obscene ways possible. They are an example of market failure.

02-26-2011, 08:10 AM	#21 (permalink)
off axis Upright Location: Toronto, Canada	Severance packages get written into the employment contract of people at the CEO level. Companies sign up to them because they think that the probability of having to let someone go prior to the close of an agreed-upon term is low. There could be a lot of truth to that because the rate at which CEOs are let go doesn't appear to be large.

03-05-2011, 12:01 PM	#22 (permalink)
Zeraph Banned Location: The Cosmos	Its when you jump out of a plane and there's another person above you. You then pee, the pee goes upward and hits them. Hence, the golden parachute.

03-20-2011, 11:46 PM	#23 (permalink)
audioguru Upright	Same As A Poison Pill? Golden parachutes used to be excellent and reasonably nice severance packages. They have become more like poison pills that are used to accomplish a lot of devious things like letting those interested in hostile takeovers know it will cost them enough to destroy the company satisfying contractual severances due to early termination. There might be split factions on a board of directors that stacks as many CEO's on their side as possible, so they vote in an obscene severance package as a way to lock their person in for the duration. There are a lot of reasons severance packages can get ridiculous. If the corporate president is on watch when a public financing event is to take place he might use that opportunity to push for golden parachutes at a time when any public resignation might jeopardize that funding. So he says here is what I want or I resign right now. The CEO more often than not might know of skeletons in the closet that would be disastrous to the stock value that might give them a leverage for a ludicrous severance. The most insidious of these is wallstreet and banking industries who have a CEO leaving under felonious conditions and taking a few hundred million or more with them when already being scrutinized for fraud. That's about definitely being able to expose truly prosecutable actions.