Golden parachutes are the norm nowadays. It’s expected that when an executive leaves a company, they’re probably going to get piles of money. Things weren’t always this way.
When he was brought on board, creditors were trying to get control of the company away from the idiosyncratic Howard Hughes, who had been removed by the financers a year earlier.
So in case Hughes regained control and fired him, they gave Tillinghast a clause in his contract that said he would get a bunch of money if he lost his job.
TWA did incredibly well during Tillinghast’s tenure, and he became an important figure in the airline industry. He landed on the cover on Time Magazine as the airlines dealt with huge labour disputes—the first airline industry person to be featured there in nearly a decade.
He left for another job in 1976 and never collected his parachute. Still, his contract did set a precedent for things to come.
Over time, this type of incentive grew more popular. It makes it easier to hire top talent at the highest tiers of companies and is meant to reduce perverse incentives—such as discouraging hostile takeovers.
But gigantic, non-incentive-based parachutes that came out of the recent financial crisis made people rethink it. Since 2000, 21 CEOs have received severance packaging totaling over $100 million, and they walked away with a total of $4+ billion, according to Harvard Law.
And it all started with one guy who just wanted something to fall back on.
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