Golden parachutes, those packages that reward top executives if their company is acquired, have attracted much attention from investors and public officials for more than two decades. Defenders of golden parachutes believe that they provide executives with incentives to facilitate a sale of their companies. While the evidence confirms this, it indicates that golden parachutes have significant costs as well and might fail to serve the interests of shareholders over all.

Shareholder resolutions opposing golden parachutes have often received substantial support over time. Congress adopted tax rules aimed at discouraging large golden parachutes, and the rules created during the financial crisis precluded companies receiving government support from providing golden parachute payments to top executives. Subsequently, the Dodd-Frank Act mandated advisory shareholder votes on all future adoptions of golden parachutes.

Many companies and financial economists, however, continue to believe that golden parachutes are an important and beneficial element of executive pay. Because top executives typically give up independence and control when their companies are acquired, executives that do not have a golden parachute might be excessively reluctant to sell — and often can impede or even derail an acquisition they dislike.

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