Concept Class


Concepts are being crafted for better understanding

Concept classes are designed to provide conceptual clarity and to ensure better and deep understanding of the subject. The rich repository consists of concepts ranging from wide variety of subjects Chemistry to Communication, Social Science to Natural Science, Education to Vocational….
What is Golden Parachute?
The saying Golden Parachute is made up of two words - one is Golden and the other is Parachute. In order to understand what "Golden Parachute" truly means we must first know what does Gold mean. In simple terms Gold is a metal which is expensive and exclusive. So anything Golden ought to be precious and expensive.

And the other word is "Parachute". Parachute is something which helps us come down and land safely. So "Golden Parachute" is a parachute which is extremely expensive and helps one Land safe and secured. This term "Golden Parachute" finds mention in companies.

It finds mention in the contract signed by the company and the prospective CEO at the time of hiring the CEO.

We all know that today the businesses are extremely dynamic. Every now and then mergers and acquisitions are taking place. We often hear this company has merged with this company and this company has been taken over by some other company... Now in such a situation what happens is one of the CEO of either company has to step down and lay down his or her office before the expiry of his term or contract appointment.

Or in some cases the CEO is forced to step down before the expiry of the contract as in the case of Mistry the CEO of Tata Sons.

The question now is ... what happens to them?

Overnight they are out of their job with no financial security. A CEO of any company cannot be left high and dry overnight to mend for himself. Hence, there is a provision in the contract that in the event of his exit before the expiry of the contract he shall be paid handsomely for his departure. Mind it the amount to be paid in the event of his/her exit is mentioned in contract at the time of hiring the CEO.

Now ... this amount, paid as financial security to the CEO is what is called "Golden Parachute". This helps CEO land safely and financially secured.

On the other hand ...

While the term "Golden Parachute" is used for safe and secured landing for the executive ... the same arrangement of paying money is termed as "Poison Pill" for the companies as they have to pay heavy some to the outgoing CEO. Naturally then, it also deters companies to whimsically get rid of their CEO.

"Golden Parachute" and "Poison Pill" therefore, are the two sides of the same coin.