TITLE

GOLDEN PARACHUTES--Executive compensation or Executive Overreaching?

PUB. DATE
January 1984
SOURCE
Journal of Corporation Law;Winter84, Vol. 9 Issue 2, p346
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
There are many different methods of executive compensation. Among these are pension plans, stock-option plans, and annual salaries. The golden parachute, a relative newcomer to the area of executive compensation, is an employment contract that guarantees cash settlements to corporate executives whose companies change hands through a merger. Recent articles that discuss golden parachutes generally imply the illegitimacy of such agreements. The reason for this implication of questionable validity is that golden parachute agreements appear on their face to overcompensate their recipients. The issue, therefore, focuses on the adequacy of consideration provided by these agreements. The purpose of this comment is to determine whether the golden parachute is a legitimate form of executive compensation and, if so, the limitations that are associated with its implementation. The article will begin with a general discussion regarding the law of executive compensation, focusing primarily on the business judgment rule. The discussion will then shift to application of the business judgment rule and the justifications asserted in favor of golden parachutes. Shareholder ratification and voting by disinterested directors are then briefly discussed. Finally, whether the effectiveness of those safeguards against the inherent conflict-of-interest that exists when one votes one's own salary will be examined. Examples of recently implemented golden parachutes will be used to highlight key points.
ACCESSION #
6038725

 

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