Golden parachute
Also called change-in-control payment, golden parachute compensation.
Termination or change-in-control payments. They may appear in All Other Compensation or in a separate merger proxy table; a single-year SCT spike is not always a parachute.
What it is
A golden parachute is a severance or change-in-control package: cash multiples of salary and bonus, accelerated equity, benefits continuation, and sometimes tax gross-ups, payable if the company is sold or the executive is terminated under specified conditions. Item 402 requires a “potential payments upon termination or change in control” table. A separate golden-parachute vote (Item 402(t)) can apply in merger proxies.
A one-year SCT spike is not classified as a parachute on CompensationBase. Change-in-control amounts may appear in All Other Compensation in the year they are paid, or only in the hypothetical merger table we do not ingest.
Why companies use it
Boards use parachutes so executives will evaluate a sale without fearing personal loss of unvested equity, and so a buyer can clear the C-suite. Employment agreements negotiate the multiple (for example, 2x salary plus bonus) in advance.
Shareholders see the hypothetical table so a deal’s extra compensation is visible before it is paid.
Pros
- Can reduce a conflict of interest in a sale process.
- Pre-negotiated terms avoid improvising severance in a crisis.
- Merger-proxy disclosure is specific to the deal.
Cons
- Single-trigger acceleration can pay people who keep their jobs.
- Gross-ups are expensive and unpopular.
- Hypothetical tables use assumptions (stock price, date) that will not match the eventual check.
Examples
Paid vs hypothetical
The annual proxy’s termination table might show $40 million “if terminated after a change in control.” That $40 million is not in this year’s SCT Total. If a deal closes and cash is paid, next year’s Other column (or a merger filing) is where paid amounts appear.
Not an unusual grant year
CompensationBase’s grant-year flag looks at equity share and year-over-year equity jump. A cash parachute in Other would not trip that equity heuristic.
On CompensationBase
A one-year SCT spike is not classified as a parachute. Change-in-control amounts may appear in All Other Compensation or in a separate merger table we do not ingest.
Related terms
- All other compensation
The SCT catch-all column for perquisites, certain pension amounts, and items not put in salary, bonus, or equity. Alternative-asset managers often report carried interest and partnership distributions here.
- Form 8-K Item 5.02
A current report item that can disclose new hire grants, severance, or role changes. CompensationBase does not add Item 5.02 amounts into the headline SCT total.
- Clawback
A policy or rule that lets a company recover incentive pay after a restatement or misconduct. Clawbacks change later realized or recovered amounts; they do not rewrite the original SCT Total as filed.