What are Golden Parachutes

Golden parachute is the term which is used in the context of anti takeover measures. It refers to agreement by a company with its top management regarding the compensation or bonus which they will receive in case they are terminated. This type of agreement is done when there is a threat of takeover of the company by some outsider. In order to prevent such takeover companies go for golden parachute where if people from top management are terminated within one year of takeover then they will get certain amount as compensation. Golden parachute may be used in anticipation of any hostile takeover or during the takeover battle. The compensation benefits need not necessary has to be cash; it can be stock options, combination of both cash and stock option or any other incentive also.

Similar to golden parachute are silver and tin parachutes, the only difference is that while silver parachutes are agreements that cover greater number of employees of the company and tin parachutes cover almost all employees of the company. However in case of tin parachutes the payment of compensation is less as it covers all the employees of the company.

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