Golden Parachute as a Compensation Shifting Mechanism
Albert H. Choi
University of Virginia School of Law
August 4, 2003
We demonstrate how a golden parachute can be used to improve the target shareholders' net return by partially shifting the managerial compensation burden to the buyer through a higher acquisition price. Consistent with the empirical observations, we show that 1) golden parachute will be contingent on a change-of-control rather than solely on the manager's layoff, 2) golden parachute will be promised early, e.g., at the time of the manager's employment, not just in the face of a takeover or a merger, 3) the shareholders would want to extend its coverage to other employees, and 4) the size of the parachute would be much larger than the manager's annual compensation.
Number of Pages in PDF File: 24
Date posted: July 27, 2002
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