4 min Read Apr 16, 2022
A golden parachute is a contractual agreement that provides substantial financial benefits — including large cash severance payments, accelerated vesting of stock options and restricted shares, continuation of benefits, and bonus payments — to senior executives of a company if they are terminated or forced to resign following a change of corporate control, such as a merger, acquisition, or hostile takeover. Golden parachutes serve a dual purpose: they compensate executives for the personal disruption of a change-of-control event and, from a takeover defence perspective, they increase the financial cost of completing an acquisition by inflating the total consideration required. Critics argue that golden parachutes misalign executive and shareholder interests by rewarding management for transactions that may not benefit shareholders. In India, executive compensation including severance arrangements for listed company key managerial personnel is subject to SEBI's corporate governance regulations, Companies Act, 2013 provisions on managerial remuneration, and shareholder approval requirements — making US-style golden parachutes less common but not entirely absent in India's large listed company landscape.
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