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Golden Parachute | What is Golden Parachute? | Examples & Benefits - YouTube
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friends today we are going to discuss a
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tutorial on golden parachute as you can
see over here Marissa Mayer will make
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over a $44 million if Verizon fires so
this was quoted in the business and said
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as you can see right in front of you the
article is there again I'll just read it
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for you
Marissa Mayer become the subject of the
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widespread speculation for the reason
other than her performance at we How ever
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since Verizon agreed to buy the Internet
giant industry has been abuzz with the
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absorbant golden parachute that Marissa
would be flying with in this case the
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former decides to terminate as you can
see the details of Marissa Mayer's cash
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equity benefits and total details okay
compared to the other the latest being
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the buzzer on the Exxon Mobil Rex
Tillerson who is likely to receive
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golden parachutes of $180 million
from the company in the event of his
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confirmation as president elect Donald
Trump's Secretary of the State merger is
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a major event in the corporate landscape
and brings about a great deal of changes
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in all the companies involved while some
changes are forcing other remains
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ambiguous however what is interviewing
is the fact that the changes flow across
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each level in the corporate structure
and that and the Helms is not exception
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many a times high-ranking managers and
executives lose the job in the process
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of merger but what is interesting enough
is to note that in fact it's not the
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absolute loss for them usually the
companies undergoing merger compensate
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the top-level executives with the
astronomical amounts and this is known
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as golden parachute what is golden
parachute see technically golden
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parachute is defined as a contract
between the company and its top-level
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management which entails that the
executives will be offered considerable
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benefit in case of the later is
terminated as a result of the
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restructuring activity this benefits
usually include cash bonus stock options
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retirement package medical benefits and
of course a handsome see valence fail it
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is also used as a
for anti takeover mechanism or poison
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pill to dissuade any potential merger
the quantum of benefits or the
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compensation promise promise of the
company might lead to many acquirer to
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change the takeover decision let's get
into the flashback history of the golden
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parachute the history of the golden
parachute dates back in closer to 90
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1961 when Charles become its first
recipient it is said that the Emmett's
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tug of war to push off the hoards Huge
he was offered a generous golden
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parachute in case huge gain or control
of the company and fired Tilling hast
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however the tide of the event was
different and Charles jr. continued in
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the company for 15 more EUR amusingly he
also never collected the parachute the
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name golden parachute is used to denote
the soft and the safe landing of the
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terminated executive with monetary
benefits way about the usual severe ins
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factors well this was isolated incident
in the 60s it soon become a preferred
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way of compensating white-collar
employees particularly then in the late
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70 hostile takeovers become the order
of the day in 1980 and the US corporate
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landscape saw a surge in the golden
parachute as as for the Howard Business
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Review HBR by 1986 around 35% of the
largest 22 of the US corporations had
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implemented a clause stating that their
executives will be provided with cash
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payments along with the range of other
benefits in case there is a change in
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hands as you can see the rapid rise of
the golden parachute this is the graph
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in front of you in the 1980s there was a
stiff there's a complete stir-fries you
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can see the graph is continuously going
up and up cumulative number of the
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contracts is increasing like anything
the graph shows that there was a
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significant rise in the golden parachute
contract in the ticket between 1980 and
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1990 the cumulative number of the
contract jacked up by around 75 to 300
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earlier only small companies fell prey
to hostile takeovers however the
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popularity of the junk bond market
financing becomes comparatively easier
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and even large multinational fortune 500
companies become easy targets of hostile
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takeovers during this period several
companies included to the claws of
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golden parachutes in the employment
contracts in an attempt to retained high
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qualified employees this was considered
a major element of the security by high
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level of executives before they took up
the jobs in mojo prawn industry Lee
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to say it was defensive mechanism for
also for the hostile takeover as it
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increased the cost of the take or
considerably this was the reported
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golden parachute payment as a percentage
of the target equity okay advisory
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formed like institutional shareholder
ISS institutional shareholder services
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as revealed a trend that the condom of
the golden parachute as a percentage of
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the targets equity value increases as
the deal sells becomes a smaller so this
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graph shows that the size of the
reported golden parachute payment as a
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percentage of the targets equity value
for 25 largest deals announced between
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May 13 and April 14 and also includes 65
companies that enhance the compensation
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for the executives let's understand what
is a difference between golden parachute
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goldenhair handshake and golden handcuff
these are the three things many times
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there are very few terms being
interchangeably used like golden
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parachute one of them is called cold in
here handshake golden handshake is
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nothing but an upgraded form of golden
parachute the sea valence package in the
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golden handshake is bit more generous
than the later another minor variation
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is that golden handshake are offered to
high-ranking executives who are
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dominated through dismissal corporate
restructuring or even during the
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scheduled retirement the severe ins
package for golden handshake includes
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cash equity and certain stock options
there can be other elements in Korean as
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well I mean because which solely depends
on the discretion of the companies
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another term used in the similar sense
is golden handcuffs while the golden
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parachutes and golden handshakes may
have a high-level CEOs more inclined
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towards the exit to receive the hefty
package is waiting for them golden
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handcuffs acts in the opposite way the
act desert the center for the executives
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for leaving the company and joining the
competitors it is said that under the
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clause of golden handcuffs execute you
have to give back the bonuses and reward
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receives if they leave before they
stipulated period let's see what are the
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benefits of this golden parachutes see
there are two perspective of evaluating
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the nuisance nuances of golden parachute
one is from the company's perspective
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and other from the shareholders
perspective first of all no company can
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function if there is a conflict of
interest at the key management level
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while certain takeovers are hostile some
of them can even be beneficial for the
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company's future and growth if the key
personnel becomes insecure about
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they may try to cause hindrances in the
merger or takeover process on the other
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hand with golden parachute employees can
be secured about their compensation and
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offer complete cooperation
the merger process the Mojo process once
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the terms of these severe ins packages
laid out the exit of the white collar
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executors become more content things go
in accordance with a predetermined
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agreement and there is low bad blood
this also protects a company from being
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Melling by the key personnel in the
event of the termination due to merger
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see the possibilities of the hostile
takeovers are reduced with the clause of
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golden parachutes being included in the
contract the acquiring company might not
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find it appealing to shed such an
expensive packet if it plans to oust or
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the key employees already in the control
let's see the top 10 golden parachutes
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as you can see this are the top 10
golden parachutes green resorts Simon
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Property Group
Maxon discovery communication oracle.com
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excess instruments and Lockheed Martin
you can see the amounts and the CEO
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names right over there
the golden parachute what are the some
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of the criticism and controversy is
going on behind this see something
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seemingly so attractive cannot be cents
controversies and criticism isn't it
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I mean golden parachutes have been the
favorite punching bag for many critics
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the groups particularly miffed with our
shareholders and the other employees of
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the company few reasons why golden
parachutes are usually opposed to our
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the quantum of the packages mammoth
which leads other employees entitled to
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receive a generate civilians package to
feel as deprived negated or less
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privileged so this kind of
dissatisfaction among the existing
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implants from a hindrances to smooth
functioning of the company many a times
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the top level executives underperform or
to do something unethical due to which
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they may end up losing the job
many companies offering the golden
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parachutes are silent on this aspect and
the clause ends up being an incentive to
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earning managers were terminated
needless to say shareholders an employee
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will not will not feel good about it
example Tony Hayward the chief executive
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officer for British Petroleum was
terminated due to his perceived lack of
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leadership during the infamous oil spill
that tarnished his tenure however he is
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reported to have walked away with severe
ins package of more than $1,000,000 and
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8 digit pension amount critics feel
that it is responsibility management to
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act in the best interests of the company
if a white-collar executive loses his
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job because of the friendly merger there
is no need for the company to compensate
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them in addition of their already fed
package another logic against the golden
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parachute is that if the acquirer has a
deep pockets the compensation cost may
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be a tribal amount of him hence the idea
of using golden parachute his entity
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calm mechanism is rendered futile
shareholders in the particular are not
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too fond of golden parachutes because
many of them are only opinion that it is
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unnecessary to waste no shareholders
money they feel that many CEOs were
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promised hefty civilians package will
only be an orbit by it and not work for
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the long-term goals of the company
whether or not their fears are genuine
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is difficult to conclude it doing
research people we put title like golden
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parachutes and the wealth of
shareholders by Lucan it is stated that
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over the long term golden parachutes may
be harmful for shareholders value those
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company which implement the golden
parachute flaws often low risk adjusted
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stock returns as compared to the
counterparts in spite of the fact that
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the later are more likely to be acquired
the researchers explained that golden
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parachutes makes make acquisitions like
a cakewalk for CEO and they aren't
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afraid of being acquired therefore they
are not motivated enough for enhancing
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the shareholders value or not I will
tell you some of the regulations for
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golden parachute the ongoing
opposition's have gained considerable
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momentum over the couple of years so
much so that the Congress has released
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the tax rules in move to discouraging
rampant golden parachutes in involving
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two general severe ins package addition
in 2010 section 951 of dodd-frank Wall
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Street Reform and Consumer Act has also
made it compulsory to obtain move votes
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of advisory shareholders on all instance
of the golden parachutes
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henceforth in 2011 SEC unveiled new
clauses on the sale of the P word of
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golden parachute the say on pay what
request investors to vote on the
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compensation to the top executives of
the company the CEO the CFO and at least
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three are the most highly compensated
executives about the golden parachute
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the SEC mended that the companies are
required to comply with the golden
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parachute shareholders advisory Wharton
disclosure requirement in proxy
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statement to approve a merger and
acquisition similarly from initially
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filed on or after 25 April 2011
according to the
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Consultancy will mirror the data between
2011 2014 reveals that merely around 5%
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the golden parachute cords gun garnered
less than some majority support even
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though in most of the cases the
shareholders were not opposed to the
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actual merger concern shoulders are now
taking a stand against the golden
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parachute they do not deem appropriate
that suppose what I mean I want to see
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your tax perspective of golden parachute
the Internal Revenue Code has 3 or
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component pertaining to the golden
parachute as per Section
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4999 of the
IRS or 20% excise tax is
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imposed on additional to the normal
income tax on the excess parachute
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payments while section 280 G deem the
payments under the golden parachute
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non-deductible to the company this
provisions are passed by the Congress as
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a part of the deficit reduction Act of
1984 lastly the section 162 a of the
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Internal Revenue Code denies the tax
deductibility of any compensation over
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and over $1,000,000 unless the same is
linked to the performance of the
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executive this way the under performing
high-ranking executive when compensated
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with hefty packages will come under the
purview of this section let's make a
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final conclusion golden parachute is
indeed an intriguing concept and the
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opinion continue to be divided on it
however it has emerged as one of the
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most in indispensable part of the CEOs
compensation package while he Clause
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seems important to lure and retain
immensely talented executives in the
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company underlying ambiguity causes many
to take undue advantage of this
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situation even though many provisions
have been adopted to curb the flattened
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misuse of the golden parachute
unfortunately they have not be able to
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realize to their full potential golden
parachute is quite I mean it's it's a
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bad thing unn beaters and
corporations have been using various
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strategies to circumvent the provisions
under Section 4999 and
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section 280G of the Internal Revenue
Code the clause must mention in
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particular that the package is intended
only in the event of the hostile
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takeover noticing Li the misuse many
companies have been tweaked the
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condition pertaining to the golden
parachute while many have reduced the
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size of the package many have included
ethics Clause to exclude any errant CEOs
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from drawing the golden parachutes so
that's it for this particular topic if
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