Golden parachutes and retirement packages are two of the issues the Occupy Wall Street protestors are fighting against. But what is a golden parachute?
Golden parachutes are employment contracts between corporations and their top executives. But don’t be fooled, these parachutes aren’t life saving devices. They’re severance packages granted to executives in the event of corporate mergers or changes in ownership. These severance packages tend to be extremely lucrative for executives when they walk away from a company.
Shareholders often argue that executives are already well compensated and shouldn’t need additional incentives, while others claim golden parachutes help retain top talent.
Last month, Hewlett-Packard (HP) found itself in the headlines regarding this topic. Even though HP is considered one of the world’s largest technology companies, they can’t seem to keep a CEO in the big chair. HP’s revolving door of CEOs has cost the company an estimated $83.3 million. Just this past September, HP announced that Meg Whitman will replace Léo Apotheker as CEO, giving the company its fourth CEO in a decade and its third in a year. Apotheker, who held the CEO title for approximately a year, is floating away with a golden parachute consisting of a cash severance of $7.2 million, plus $18 million more in stock. This is in addition to his $1.2 million annual salary, a $4 million signing bonus and $4.6 million in assistance to cover relocation cost. Not bad for a year of work, don’t you think?
These types of compensation agreements make selling and merging of businesses much more lucrative and likely, thereby reducing competition and innovation in the marketplace.