Golden Parachute as a Compensation Shifting Mechanism
Albert H. Choi
University of Virginia School of Law
The Journal of Law, Economics, and Organization, Vol. 20, No. 1, pp. 170-191, 2004
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) the golden parachute will be contingent on a change-of-control rather than solely on the manager's layoff, (2) the golden parachute will be promised early, for example, 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 can be much larger than the manager's annual compensation. We also examine the effect of a golden parachute on the managerial incentive scheme.
Accepted Paper Series
Date posted: November 19, 2003
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.313 seconds