Golden Parachutes

Scope of Coverage

Golden parachutes are usually included in the contracts for C-level executives (chief executive officer, chief operating officer, chief financial officer, and chief legal officer), but they sometimes appear in the contracts for executive vice presidents and other top officers as well. After the merger between Coors and Molson Companies, 11 top executives at Coors resigned, since they had change-of-control payment provisions in their contracts. None of the Molson top executives resigned, though, as they were not covered by such provisions.

Components

The pay components of a golden parachute may vary widely. It may include not only a cash payout, along with restricted stock or stock options, but also an annual pension, a departure bonus, medical benefits, and administrative and secretarial support. It may also include other imaginative perks, including payment of charitable donations in the executive's name or use of an executive jet.

Amounts

In their golden parachutes, CEOs typically receive two or three times the value of the base salary and bonus, as well as benefits, stock options, and pension payments. Presidents, COOs, CFOs, and other C-level executives typically receive one to two times the base salary, plus bonus, benefits, stock options, and pensions.

Some CEOs have negotiated golden parachutes that have allowed stock options to vest immediately, and thereafter payouts skyrocketed, according to one compensation expert. Some golden parachutes have had a platinum lining. For instance, Michael Ovitz received a severance payment exceeding $100 million from Disney; Phillip Purcell had an exit package of $114 million after his ouster as CEO of Morgan Stanley; and Jim Kilts, CEO of Gillette, received a golden parachute of $165 million after Procter & Gamble acquired his company. Those amounts raise questions of distributive justice, especially since a merger may trigger uncompensated layoffs of lowerlevel employees.

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