The Golden Parachute

Definition:  A golden parachute is a contractual agreement between a company and an employee (usually an upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is unspecified. These benefits may include severance pay, cash bonuses, stock options, or other benefits. They are designed to reduce perverse incentives.

Proponents of golden parachutes argue that they provide three main benefits:

1. Golden parachutes make it easier to hire and retain executives, especially in industries more prone to mergers.
2. They help an executive to remain objective about the company during the takeover process.
3. They dissuade takeover attempts by increasing the cost of a takeover.

Critics have responded to the above by pointing out that:

1. Dismissal is a risk in any occupation, and executives are already well compensated.
2. Executives already have a fiduciary responsibility to the company, and should not need additional incentives to stay objective.
3. Golden parachutes costs are a very small percentage of a takeover's costs and does not affect the outcome.

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I read through some of the now defunt bill that was up for a vote today on 'The Hill'.  While I have not been for this bill and still am not sold, one of my biggest concerns, as with many Americans was this 'Golden Parachute'.  Not sure about you, but I had a tough time reading this bill, but paid particular attention to section 302 which pertains to Executive compensation.  While they have touted that there was limits to what the top six executives could receive as compensation, I am simply not seeing that.  I am seeing alot of double speak and loopholes in this section in particular.

I believe if the government would have already seized any and all compensation given to the former heads of Fannie Mae, Freddie Mac, Lehman, AIG, WAMU and others that have failed, lets say, in the past year it would go along way in making me feel like they are holding the 'Leaders' accountable. 

Now, I know we will have those that say this cannot be done, but yet we seize or freeze assets and accounts of suspected wrongdoers in other areas - why not start with a bill to address this?

After all, don't you as citizens of this great nation feel like you are being held accountable?  If it smells like... Looks like...It probably is....

Regards

Tim