Golden parachute
| Golden parachute |
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Golden Parachutes are one of the varieties of so-called poison pills. It is a method of defense devised in the 80s of the twentieth century aimed at preventing a hostile takeover in the capital market.
Application means
The use of golden parachutes was aimed at reducing short-term attractiveness of the company being the subject of a hostile takeover. They consisted of the top management company providing a very high clearance operations in the event of a successful takeover and loss of their previously occupied position.
With the development of mergers and acquisitions market, mainly in the United States, golden parachutes losing in importance, giving way to an increasingly complex and innovative varieties of poison pills. It turned out that even high (tens of millions of dollars) clearance for the company's authorities do not interfere in mergers worth the amount counted in the hundreds of millions or even billions of dollars.
Examples of application
The best known example of an unsuccessful application of the golden parachute is taking over Revlon in 1986 by Pantry Pride. The result is that a former director of Revlon received compensation of $35 million. However, the value of operations of about $1.8 billion removed golden parachute effectiveness and the company was successfully took over.
Currently, quite often, the principle of the golden parachutes for CEOs of largest companies and financial institutions are used both in Poland and worldwide. Examples: compensation for Kenneth Lewis, former president of Bank of America in the amount of $120 million, compensation for former presidents of the Orlen (Polish Oil Concern) Walczykowski Jacek (about 6 million), Igor Chalupiec (1.5 million) and Piotr Kownacki (about 1.44 million)
References
- Choi, A. (2004). Golden parachute as a compensation-shifting mechanism. Journal of Law, Economics, and Organization, 20(1), 170-191.
