The aim of this essay is to assess the usefulness of business leaders having “golden parachutes” by applying microeconomic reasoning to critically evaluate a ban of the practice. A definition of golden parachutes will be given in this introduction, while in the main part the most important pros and cons of a ban of this practice will be critically evaluated. In addition, various solutions for resolving the conflict of interest will be shown and explained using German regulations as an example.
Adopted in the late 1970s and early 1980s (Bedchuk, Cohen and Wang, 2012), a golden parachute is a controversial management perquisite that allows protected managers to voluntarily resign and collect substantial remuneration – in some cases several million dollars – after a triggering event, usually a hostile takeover (Cochran, Wood and Jones, 2013). Mogavero and Toyne (2013) refer to golden parachutes as a form of compensation insurance in the event of termination of employment following a change of corporate control. However, this is a very broad definition of golden para-chutes, with many authors referring to them as a bonus when a takeover occurs (Bedchuk, Cohen and Wang, 2012; Singh and Harianto, 2013; Machlin, Choe and Miles, 2013).
Inhaltsverzeichnis (Table of Contents)
- I. Introduction
- II. Main body
- 1. Reasons in favour of golden parachutes
- 2. Reasons against golden parachutes
- 3. Problem-solving approach for the conflict of having “Golden parachutes” or not.
- III. Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay aims to evaluate the usefulness of golden parachutes for business leaders through a microeconomic lens. It critically examines the arguments for and against banning the practice and explores potential solutions to the conflict of interest surrounding golden parachutes, using German regulations as an example.
- The impact of golden parachutes on corporate acquisitions and shareholder wealth.
- The role of golden parachutes in attracting and retaining top talent.
- The potential for golden parachutes to create conflicts of interest between executives and shareholders.
- The relationship between golden parachutes and the effectiveness of corporate governance.
- The influence of golden parachutes on firm valuation and stock returns.
Zusammenfassung der Kapitel (Chapter Summaries)
The introduction defines golden parachutes and outlines the essay's objective. The main body section explores the arguments in favor of golden parachutes, highlighting their potential benefits for attracting and retaining top talent, reducing conflicts of interest during takeovers, and enhancing shareholder value. The subsequent section presents counterarguments, emphasizing the potential for golden parachutes to decrease stock values, reduce managerial accountability, and create negative investor perceptions. The essay concludes with a discussion of problem-solving approaches to address the conflict of interest surrounding golden parachutes.
Schlüsselwörter (Keywords)
The primary keywords and focus topics of this essay are: golden parachutes, corporate acquisitions, shareholder wealth, executive compensation, managerial incentives, conflict of interest, corporate governance, firm valuation, stock returns, microeconomics, German regulations.
- Quote paper
- Jochen Kasper (Author), 2013, Golden Parachutes. Pros, Cons and a Problem-solving Approach, Munich, GRIN Verlag, https://www.grin.com/document/276544
