Golden Parachutes Essay

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1. Golden parachutes are benefits that usually involve the executives of a firm. These executives enjoy a benefit of compensation in that case that they are fired or demoted in the event of a takeover or merger. These benefits can range from severance packages and bonuses to retirement and stock plans. Many have discussed the issue of how golden parachutes make it more difficult for companies to acquire one another. What makes it difficult for acquiring companies to takeover or merge with other companies is the possible payouts that golden parachutes require. In the event that a company gets acquired it can become very costly to replace the management teams set in place. 2. From the aspect of target management, golden parachutes benefit them by providing them with compensation in the event of a change in power. It also allows management to take a greater level of risk without the fear of them losing their jobs. In Incentives and Innovation: Evidence from CEO Compensation Contracts, the authors mention that because of golden parachutes, managers are willing to take more risk and negotiate the best terms possible during a corporate takeover. b) In, What Matters in Corporate Governance, the author’s state “golden parachutes may also produce benefits for shareholders by making incumbents more willing to accept an acquisition and increasing the likelihood of an acquisition.” So in the event of a takeover the shareholders best interest are kept in mind. Also by providing golden parachutes companies attract the best executives around. This usually translates to greater shareholder maximization. Golden parachutes allow for top-level executives to take more risk, which can also translate, to greater shareholder reward. 3. Golden parachutes attract the best top-level executives in their respective industries. By attaining these executives there is higher chance these

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