Defining Golden Parachute

Every organisation has a goal to employ the most talented employees and retain them for an extended period. So, while hiring high-risk executive-level professionals, HR managers have to make the most crucial decisions to benefit the firm.

As the employment Market has become highly competitive, many companies offer incentives to satisfy employees. So, Golden Parachute is also a type of significant offer for senior-level employees.

An Overview of Golden Parachute

A Golden Parachute is a severance package for executives when their employment is terminated. According to the agreement, the company makes a special payment if any situation negatively affects the job of these executives. For instance, an organisation may need to do so during a hostile takeover or merger of businesses. It is a common practice to retain professionals in the executive role. While making the employment contract, the company has to include Golden Parachute. You can find this type of agreement mainly in retail, technology, financial, and healthcare industries. However, organisations in other sectors can also consider Golden Parachute for their high-level employees.

Know About Its History

In 1961, Trans World Airlines CEO, Charles C. Tillinghast, was the first to receive the Golden Parachute. At that time, the organisation was striving to take control away from Hughes. If the company control was regained by Hughes, the organisation would give Charles a clause in the employment contract. He would receive a substantial amount in case of the loss of his job.

Why is Golden Parachute Advantageous?

There are some advantages of including Golden Parachute in the employment contract.

• Recruit and Retain the Best Talents - The inclusion of the Golden Parachute clause in the employment agreement helps you attract top talents. Senior-level professionals in a company always desire security. Especially if your organisation has a considerable employee turnover rate or a chance of M&A, you should consider Golden Parachute.

• No Disputes During Company Merger - Executives lose confidence and cannot confirm job security during the merger. The compensation available with Golden Parachute during the job loss will prevent them from feeling nervous.

• Minimise the Risk of a Hostile Takeover of Business - If your company offers Golden Parachutes for top-level employees, your competitors will think twice before taking over your business. They will be liable for the payout according to the termination package. If they replace your management team, they must pay the amount as compensation.

One instance of Golden Parachute will give you a clear idea. Elon Musk (CEO of Space X and Tesla) acquired Twitter, the social networking platform. However, the deal becomes costlier due to the provision of the Golden Parachute. Elon had to pay a considerable amount after he decided on firings.

What are the Best Practices of Golden Parachute?

While including the Golden Parachute clause in the employment agreement, you should make some considerations-

• Occasional Re-Evaluation - A company may face various circumstances at any time. That is why it is important to evaluate the agreement every few years.

• Single and Double Trigger Events - If you agree, mention the events when the Golden Parachute will apply. A single trigger may not be favourable for your organisation because executives will easily receive the payout in most scenarios. A double trigger means more than one event should occur to deploy Golden Parachute.

• Clawback Provision - It is another significant clause to help your company restore the money if the employee has shown bad performance or unethical behaviour (for which he is to be terminated).

So, you should focus on these facts to benefit your company.

How does Golden Parachute Differ from Golden Handshake?

These provisions have both similarities and differences. Both are intended for senior executives and are available as equity, monetary compensation, or stock. Moreover, in both cases, individual performance does not affect the agreement. But, unlike Golden Parachute, Golden Handshake comprises retirement benefits. Furthermore, Golden Handshake is more lucrative and rewarding to employees. So, you can decide whether to incorporate the Golden Parachute clause in your recruitment-related contract. You can decide on the rewards you will give if you abruptly fire a top-level executive. Paid health insurance and some other incentives can be included in the package.

Conclusion

Golden Parachute is yet another organisational phenomenon to take care of. With insight into such procedures, you can master the art of organisational management on the go. As organisations all around look forward to excelling in their respective industries, the adoption of the strategy of Golden Parachute has become much more prevalent. With such high-end strategies, organisations can easily monitor and manage employees while fulfilling organisational goals.