A contractual provision that provides substantial severance benefits to a senior executive if they are terminated, demoted, or resign following a change of control such as a merger, acquisition, or hostile takeover.
Golden parachute provisions typically include accelerated equity vesting, cash severance (often 2-3x annual compensation), continued benefits, and tax gross-up payments. These provisions serve multiple purposes: they attract executive talent by reducing the personal risk of joining a potential acquisition target, they allow executives to evaluate acquisition offers objectively without concern for personal financial impact, and they help retain leadership through transition periods. Golden parachutes have been controversial due to perceptions of excessive executive pay. Regulatory responses include Section 280G of the Internal Revenue Code (which imposes excise taxes on 'excess' parachute payments) and shareholder approval requirements. Executive search firms advise clients and candidates on market-standard change-of-control provisions.
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