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The South Financial Group, South Carolina's largest bank, announced earlier this week that it had been approved to receive $347 million from the U.S. government. But the bank's founder and longtime CEO Mack Whittle won't be sticking around. He retired with an $18 million severance package in late October, two months earlier than had been expected. Because of the timing, he's free from golden parachute limits (PDF) that come with accepting bailout money.
"The whole idea was to avoid these types of arrangements," Laurence Wagman of compensation consulting firm James F. Reda & Associates told us. The Treasury "doesn't want the companies receiving taxpayer funds, terminating executives and having them walk away with excessive golden parachutes."
Democratic congressional leaders urged the Treasury last month to prohibit golden parachutes altogether. Treasury officials have said that the executive pay limits are designed to curb excesses while encouraging widespread participation in the program.
Meanwhile, corporate governance analyst Hodgson said that Whittle's deal -- nominally a retirement, but treated as a severance -- is all too typical of golden parachutes: "If you and I decided to retire, we might get what's left of our 401(k). But for some reason the rules seem to be different for executives. They get severance even though they're retiring. There's no logic to it at all."
Moderna's board of directors approved a golden parachute for CEO Stephane Bancel worth more than $926 million at the end of last year, up from $9.4 million in 2019 before Covid-19 upended the world order.
The value of the golden parachute was disclosed Wednesday in the company's annual proxy report that details compensation packages for the company's highest-paid executives. The filing shows the rewards for executives at the young biotech company where most of the pay is rooted in the company's volatile equity.
The primary purpose of a golden parachute is to provide the executive with a soft landing should they be terminated following the acquisition. Such clauses can also provide several benefits to a target company, including:
While the purpose of a golden parachute is to provide an executive with a soft landing, the objective of golden handcuffs is to encourage a key employee not to terminate their employment before a set time.
A golden parachute consists of substantial benefits given to top executives if the company is taken over by another firm, and the executives are terminated as a result of the merger or takeover. Common benefits may include stock options, cash bonuses, and generous severance pay.
Yet, here are three executives who are set to receive eight-figures worth of severance packages despite providing almost no value to shareholders in nine years! These golden parachutes should motivate you into believing you also deserve a severance package, especially if you actually created value.
Unfortunately, the golden parachutes for these Twitter executives are not guaranteed to pay out. The reason why is that it is reported Elon Musk fired these executives for cause. If you are fired for cause, it means you did something inappropriate and negates your ability to receive a severance package.
If you are unhappy with your job, I hope this latest Twitter golden parachute case study motivates you to make a change. If you want to buy the #1 book that teaches you how to negotiate a severance, click the button below.
Firms began adopting golden parachute-style payout packages in the late 1970s. This was quickly followed by the era of hostile takeovers in the 1980s. The junk bond market made financing large takeovers possible and even the biggest among the Fortune 500 firms were no longer safe from a forced acquisition. By 1986 about a third of the largest 250 U.S. corporations had adopted a clause that provided their executives with cash payments as well as a variety of other benefits in the event of a change in company control.
In many ways, the rapid diffusion of golden parachutes was a reaction to the insecurity that had spread in corporate boardrooms as more and more firms with household names became the target of these hostile takeovers. In the past, such takeovers had largely been restricted to the world of smaller firms. But suddenly the biggest companies were no longer safe from acquisition against the will of management and directors. By the late 1980s these packages had become a fairly standard part of executive compensation packages, not only among the largest firms but also among smaller companies.
While executives have come to see parachutes as an expected part of many current pay packages, investors and the public still tend to largely see them as unwarranted and disproportionate payoffs to executives who walk away and leave their firms to pick up the pieces. Retracing the history of how the golden parachute began helps illustrate this. Businesses today are left to ask how willing they are to offer a golden payout package, no matter the exit terms.
TVA's outgoing directors have boosted the pay and opened up a richer golden parachute for the head of America's biggest government utility to lessen the chances he may be ousted or encouraged to leave by a new TVA board appointed by President Donald Trump.
When it became clear this month that the U.S. Senate was unlikely to confirm Obama's renomination of three leading Democrats on the TVA board, the board conducted another vote on Dec. 12 to boost the potential cash bonus for Johnson by another $200,000 and to sweeten Johnson's golden parachute even if he leaves TVA before his 5-year vesting in the Supplemental Executive Retirement Plan next November. The board also added extra years credit for Johnson, which can be worth up to $761,000 for each year of employment.
"I'm concerned that employee pension benefits have been reduced while Mr. Johnson's executive retirement plan has been enhanced," said Leonard Muzyn, an accountant who serves on TVA's Retirement System board. "As an elected representative of TVA employees on TVA's pension board, I would like to know how this golden parachute for Mr. Johnson benefits ratepayers and the poor people of the Tennessee Valley."
A golden parachute is a clause in an employment agreement that protects the employee in the event of termination. The best time for CISOs to set up golden parachute clauses is before being hired. This is when demand for prospective employees is highest and when employers are most willing to make concessions in their favor.
Thinking beyond just dollars and cents can help CISOs maximize the size and scope of their golden parachute packages. Money is easiest to quantify and calculate and tops most people's lists, for good reason. But other negotiable items may be equally valuable and, in some cases, easier for a company or manager to offer.
Many organizations pay for employees to participate in third-party training programs. When negotiating a golden parachute package as an incoming CISO, ask if the company would cover training in the event of severance.
All the negotiation advice mentioned above may be of little help for those already employed as CISOs. In this case, do not despair. With a little strategic planning, there is always hope for expanding and strengthening golden parachute benefits while on the job.
Most companies do match retirement contributions, which amounts to free money. As CEO of a company for over eight years, I was sad to see how many employees did not take full advantage of the 401(k) program. Learn what is available, and use it; the sooner you do, the more you gain. Knowing and maximizing available benefits could go a long way in increasing the size and scope of a golden parachute.
A payment, often tax-free, made by a company to a director, senior executive, or consultant who is forced to retire before the expiry of a service contract, as a result of a merger, takeover, or any other reason. This form of severance pay (see also redundancy) may be additional to a retirement pension or in place of it; it must also be shown separately in the company's accounts. Because these payments can be very large, they are known as golden handshakes. See also golden parachute. 2b1af7f3a8