Submitted by: Submitted by dollysdarla
Views: 279
Words: 343
Pages: 2
Category: Business and Industry
Date Submitted: 05/10/2011 09:07 PM
By law Golden parachutes have been justified on three grounds. First, they may enable corporations that are prime takeover targets to hire and retain high-quality executives who would otherwise be reluctant to work for them. Second, since the parachutes add to the cost of acquiring a corporation, they may discourage takeover bids. Finally, if a takeover bid does occur, executives with a golden parachute are more likely to respond in a manner that will benefit the shareholders. Without a golden parachute, executives might resist a takeover that would be in the interests of the shareholders, in order to save their own job.
As golden parachutes have grown increasingly lucrative, they have come under criticism from shareholders who argue that they are a waste of corporate assets. Shareholders should point out that managers already have a fiduciary duty to act in the best interests of their shareholders and should not require golden parachutes as an incentive. Especially large parachutes that are awarded once a takeover bid has been announced. Critics say that these last-minute parachutes are little more than going-away presents for the executives and may encourage them to work for the takeover at the expense of the shareholders. Is this right? Or ethical? We don’t believe so.
Now not every executive’s pay package reaches triple-digit millions, but the median
retirement pay for executives in the S&P 500- is $1 million a year, meanwhile, half of all workers have no retirement other than Social Security.
Inequality isn’t the only problem with golden parachutes. The other issue is the pay-for-failure phenomenon. CEOs often walk away from a job poorly done into cash, stock options, and company-paid taxes.
One example is Robert Nardelli’s 2007 $210 million farewell from Home Depot after
he was remembered for a sluggish stock price and a military style of management that
employees disliked.
Home Depot’s decided then to not offer the same package to the incoming
CEO...