- A “golden parachute” historically is a payment triggered by a company takeover that an executive receives upon exiting.
- Today, the term is being used more liberally to describe any kind of severance payment an executive receives after leaving a firm (even when the person’s performance has been subpar).
- WeWork cofounder Adam Neumann is reportedly getting $US1.7 billion for stepping down as the company’s chairman after its biggest investor,SoftBank, took over the flailing company in October 2019.
- Other major executives who have received multimillion-dollar golden parachutes include Marissa Mayer (Yahoo), Philippe Dauman (Viacom), and Andy Rubin (Google).
- Visit Business Insider’s homepage for more stories.
Adam Neumann stepped down as chairman of WeWork on Tuesday as the Japanese investor SoftBank took over the troubled company. SoftBank is giving Neumann $US1.7 billion ($US1 billion for stock Neumann will sell, a $US185 million consulting fee, and $US500 million in credit) for leaving his post, according to The Wall Street Journal.
The $US1.7 billion payout can be seen as a “golden parachute.”
Historically, a golden parachute referred to payment a top executive received upon exiting a firm as a result of a merger or acquisition. Today, however, the term is being used more liberally.
Peer Fiss, a department chair at the University of Southern California’s Marshall School of Business who wrote a study titled “How Golden Parachutes Unfolded,” talked to Business Insider about the evolving definition of the golden parachute.
The definition has changed through the decades.
“The original intent was really to provide protection in the event of a takeover, as opposed to what golden parachutes are often being used for now, which is more generally an attraction and retention device that’s, to a large extent, rolled into the compensation,” Fiss said.
According to Fiss, golden-parachute agreements emerged in the 1970s as protection for executives, whose roles would be uncertain after a merger or acquisition. But today, he said, the term is used more loosely to mean any part of a compensation package payable upon an employee’s exit from a firm.
“Many companies disputed that current severance payouts or enhanced retirement packages are really ‘golden parachutes,’ designed to offer soft landings in the event of takeovers,”Pradnya Joshi wrote for The New York Times in 2013. “However they are characterised, hefty packages for departing executives are still common.”
Offering a golden parachute is now the norm.
“Companies find themselves in a bind, that unless they offer a fairly generous exit package, they will find it hard to attract the kind of talent that they want to attract,” Fiss said. “Getting the genie back into the bottle would be very difficult at this point.”
Golden parachutes can be problematic, however, in rewarding subpar leadership.
“The question is, are you being compensated for a low performance,” Fiss said. “If an executive is asked to step away, yet you have a thoroughly, very attractive compensation package awaiting you. The typical incentives around high performance don’t necessarily apply the same way.”
Here are six other executives who received multimillion-dollar golden parachutes:
Yahoo — Marissa Mayer ($US23 million)
Anadarko Petroleum — Al Walker ($US98 million)
Walker, who was CEO from 2012 to 2019, received a $US98 million payout when Occidental Petroleum acquired Anadarko Petroleum (the acquisition was approved by the companies in May 2019 and completed in August 2019). This is a traditional golden parachute, as it was triggered by a company takeover.
United Airlines — Jeff Smisek (about $US37 million)
Smisek resigned as CEO in 2015 amid a federal corruption investigation, which was looking into whether Smisek was in cahoots with David Samson, the chairman of the Port Authority of New York and New Jersey. United had reinstated a money-losing route from New Jersey to South Carolina at Samson’s request, according to The New York Times.
That $US37 million included about $US5 million in cash as well as bonuses, insurance payments, a car, airport parking, and free flights, the Los Angeles Times reported in 2016. In 2017, The New York Times cited court documents indicating that Smisek’s total package was $US28.6 million.
Fiss, the USC business professor, described this as a golden-parachute payment in Harvard Business Review in 2016.
Viacom — Philippe Dauman ($US95 million)
Dauman stepped down as CEO of the media conglomerate Viacom in 2016 after a decade serving as its top executive. Dauman was ousted amid a conflict with the then-93-year-old chairman emeritus, Sumner Redstone, and his daughter, Shari Redstone.
Dauman’s golden parachute contained severance payment, Viacom shares, office space for three years, a personal assistant, healthcare, and a bonus. According to Bloomberg, those benefits brought the package to $US75 million and additional pro-rated bonus payments and interest payments brought the total golden parachute closer to $US95 million.
Around the time of departure, Bloomberg included Dauman on a list of 20 CEOs with multimillion-dollar golden parachutes in place, which it defined as compensation packages for executives terminated following a takeover. According to The New York Times, Dauman was entitled to his $US95 million if he resigned for good reason or was terminated without cause.
Google — Andy Rubin ($US90 million)
The inventor of Android – the OS used by nearly 87% of world’s smartphones – worked at Google from 2005 to 2014, serving as senior vice president of mobile and digital content for nearly a decade.
In 2017, however, The Information reported that Rubin had left Google because “an internal investigation determined he had carried on an inappropriate relationship with a subordinate.” A bombshell New York Times investigation in 2018 found that Google paid Rubin a $US90 million exit package in 2014 after finding that a woman Rubin had an affair with had credibly alleged that he “coerced her into performing oral sex in a hotel room in 2013.”
Rubin’s payout is a nontraditional golden parachute: He was not a CEO, and there was no takeover. This package falls under the more liberal definition of golden parachute. The Times characterised the payment as a Google provision that “softened the blow” of ousting Rubin.
Google — Amit Singhal ($US45 million)
The New York Times reported in October 2018 that Singhal, who was then Google’s senior vice president of search operations, groped an employee at a 2015 “boozy off-site event attended by dozens of colleagues.” Google told The Times that Singhal was found to be drunk and that, while there were no witnesses, the company found the employee’s claim to be credible.
Business Insider obtained a lawsuit in March 2019 with a complaint saying Google gave Singhal a $US45 million exit package. He ultimately received only $US15 million, however, because he joined Uber as the company’s senior vice president for engineering, which violated a noncompete agreement in his exit package.
Like Rubin’s, Singhal’s payment was a nontraditional golden parachute.