Golden Parachute
Definition
A contractual agreement guaranteeing executives substantial compensation if they are terminated following a change of control (acquisition or merger). Golden parachutes typically include accelerated equity vesting, cash severance (often 1-3 years of salary), continued benefits, and sometimes additional lump-sum payments. IRS Section 280G imposes a 20% excise tax on "excess parachute payments."
Real-World Example
A CEO has a golden parachute that includes: 2 years base salary ($800K), full equity acceleration (worth $5M), 2 years of benefits ($50K), and a $500K bonus. If the company is acquired and the CEO is terminated, total payout is ~$6.35M — subject to potential 280G excise tax on amounts exceeding 3x base compensation.
Common Mistake
Thinking golden parachutes are only for C-suite executives. While the largest packages are executive-level, VP-level and director-level employees at well-funded startups often negotiate change-of-control provisions that function as smaller golden parachutes.
Why It Matters
Understanding golden parachutes helps you see how the executive team is protected in an acquisition compared to rank-and-file employees. It also informs what you can reasonably negotiate at senior levels.
Related Terms
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