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Business Law Spring 2016

Golden Parachute
Research project

Introduction

The main idea in this research project, for the course of Business Law, is to develop a detailed
analyse and reach to a point of conclusion for the theme Golden Parachutes: The protection of
company managers
...
The
reason that I chose this theme is because it is of great importance and value, while studying
Business Economics and Management, to be informed and explore all the fields that are
connected and associated with my university courses
...

Nowadays the ending of an existing company is a nightmare for the majority of the employees in
it
...
In the process of termination the employees
tend to have a lot of questions, disagreements and it is unavoidably painful, but maybe not
exactly for everyone
...

The meaning behind “golden parachute” is the large amount of benefits that are given by the
corporation to the employees, officers, and directors because of a previously done agreement
that offers protection when there is termination of the same company
...
First, golden parachutes may enable corporations that are
prime takeover targets to hire and retain highly-qualified executives who would otherwise be
reluctant to work for them
...
Finally, golden parachutes prevent CEOs from
resisting a takeover that would be in the interests of the shareholders, in order to save their own
job
...
);
 Success fees or transaction bonuses;
 Accelerated vesting or distribution of pension benefits and other deferred compensation;
 Outplacement benefits (helping through the process of finding a new job after
terminating the employment);
 Stock options;
 Restricted stock, phantom stock or stock appreciation award;
 Payments that violate any generally enforced securities laws or regulations;
 other forms of compensation;
 Benefits and severance provided under employment agreements entered into coincident
with, or as a condition to, the change in control closing – or payments result from a
subsequent termination of employment;
 Equity or option grants made within 12 months prior to the change in control closing;
 Increases in compensation as a result of the change in control;
 Amendments made to employment agreements within 12 months prior to closing
...
Advocates argue that parachutes are a
necessary part of a competitive pay package required to attract and retain talented
executives
...

Opponents object to parachutes because they are linked to a change in control of a
company, not to its continuing or past performance
...
Headlines
from the popular press regularly criticize golden parachutes and express widespread
concern about managerial excess and the lack of pay for performance related to
parachute payments
...
1717-1753, Business Source Complete,
EBSCOhost, viewed 15 May 2016
...
Let us
start with the arguments based on supporting the golden parachutes, here is one abstract of a
review that states why:
“The Board of Directors is determined that the senior executives of the Company be able to
devote their full attention and energies to the pursuit of the Company's business under any
circumstances and that they will not be unsettled by any real or rumored possibilities of change
of control of the Company
...
”
Cochran, P, & Wartick, S 1984, '"Golden Parachutes": A Closer Look', California Management
Review, 26, 4, pp
...

When commenting on arguments supporting golden parachutes I would like to say that there
are numerous reasons why for an example shareholders are supporting these golden
parachutes
...
This benefits the
shareholders because they provide assurance with the golden parachutes to offer executives to
partly know their future and be concentrated to obtain the firms goals
...
In industries
prone to merger or takeover, the shareholders are making sure with their mutual agreements
that they stay within the firm during and stay loyal after both of these chaotic processes end
...


On the other hand, arguments against golden parachute obviously are coming from the
perspective that golden parachutes are abused only in the interest of the managers neglecting
the ones that implemented them, the shareholders
...
Another point of view that is on the opposition side of the debate is for

the

relationship between the manager’s performance and shareholders, according to the arguments
the executives have a fiduciary responsibility towards the company
...
For every additional million dollars that a raider must pay in GPs, a million
dollars is taken from the target's shareholders
...

This accusations and debates cause alarming amount of attention and focus in the newspapers,
mediums and naturally main subject in gossiping
...
Their rejection of the £28m pay package
offered to the company’s chief executive, Christopher Bailey, is a rare example of common
sense pricking the bubble of executive pay
...
Three issues should make us doubt that an employee, however talented,
is worth almost £30m (the package included an “annual allowance” of £440,000 on top of a
7|Page

£1
...
First, we overestimate our capacity to
distinguish between luck and skill
...
It is a relatively new invention, designed by and for
the managerial class
...
A few absurd salaries become the
justification for ludicrous pay across a whole industry
...
40, Humanities Source, EBSCOhost, viewed 16 May 2016
...
Mulva, who stepped down as C
...
O
...
His total: about $156 million
...
E
...
’s on the list, his exit sum is on top of
salary, bonus and other compensation received while working for the company
...
Tillinghast, Jr
...
The airline creditors of the contract were trying to expel
the opportunity of a powerful businessman named Howard Hughes taking over the lead of the
company, but unfortunately that golden parachute was never used, because Charles C
...


Also Howard Hughes took over and expanded TWA, subsequently acquired by and

merged with American Airlines and later acquired Air West while renaming it Hughes Airwest
...
Numerous payoffs and real situations of golden
parachutes that result with raising eyebrows events occurred since then but also an interesting
example is the story of the former chief executive officer of The Gillette Company, James Kilts
...
In the moment when Procter and Gamble took over the
Gillette company in 2005 the CEO J
...
And then Kilts took a $165
million golden parachute to land securely, plus additional $13 million to cover the transaction's
resulting taxes
...


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Summarizing, I have learned and explored many new information and topics that are interesting
in the field of business
...

Nevertheless I would conclude that even if the contracts and agreements are not in the future
legal or ethically binding or accepted, in my opinion they will always appear
...
As I see it
there would be much more complications between the relationship of the managers and
shareholders if they do not have a golden parachute to land with if the situation gets in the
wrong direction
...
1-12,
Business Source Complete, EBSCOhost, viewed 16 May 2016
...
111-125, Business Source Complete, EBSCOhost,
viewed 15 May 2016
...
1717-1753, Business Source Complete,
EBSCOhost, viewed 15 May 2016
...


(2008) Biggest

golden

parachutes
...
time
...
html (Accessed: 17 May 2016)
...
com (2003) ‘Golden parachute’, in Available at:
http://www
...
com/terms/g/goldenparachute
...

 James M
...
Available at:
https://en
...
org/wiki/James_M
...


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 Joshi, P
...
Available at:
http://www
...
com/2013/06/30/business/golden-parachutes-are-still-very-much-instyle
...

 Ng, T
...
Available at:
http://welovecompanylaw
...
mk/2011/11/should-golden-parachutes-beencouraged
...

 Smith, E 2014, 'Absurdly high executive pay isn't a reward for excellence -- it's a
corporate contagion', New Statesman, 143, 5219, p
...

 USLegal (2001) Golden parachute payment law & legal definition
...
uslegal
...


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