The aim of this essay is to assess the usefulness of business leaders having “golden parachutes” by applying microeconomic reasoning to critically evaluate a ban of the practice. A definition of golden parachutes will be given in this introduction, while in the main part the most important pros and cons of a ban of this practice will be critically evaluated. In addition, various solutions for resolving the conflict of interest will be shown and explained using German regulations as an example.
Adopted in the late 1970s and early 1980s (Bedchuk, Cohen and Wang, 2012), a golden parachute is a controversial management perquisite that allows protected managers to voluntarily resign and collect substantial remuneration – in some cases several million dollars – after a triggering event, usually a hostile takeover (Cochran, Wood and Jones, 2013). Mogavero and Toyne (2013) refer to golden parachutes as a form of compensation insurance in the event of termination of employment following a change of corporate control. However, this is a very broad definition of golden para-chutes, with many authors referring to them as a bonus when a takeover occurs (Bedchuk, Cohen and Wang, 2012; Singh and Harianto, 2013; Machlin, Choe and Miles, 2013).
Inhaltsverzeichnis (Table of Contents)
- I. Introduction
- II. Main body
- 1. Reasons in favour of golden parachutes
- 2. Reasons against golden parachutes
- 3. Problem-solving approach for the conflict of having “Golden Parachutes” or not.
- III. Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay aims to evaluate the effectiveness of "golden parachutes" for business leaders using microeconomic principles. It critically examines the arguments for and against banning this practice and proposes solutions to the resulting conflict of interest, using German regulations as an example.
- The economic impact of golden parachutes on shareholders and firms.
- The role of golden parachutes in attracting and retaining top talent.
- The conflict of interest between executives and shareholders during takeovers.
- The effectiveness of golden parachutes as a mechanism for mitigating risk for executives.
- Potential solutions for addressing the ethical and economic concerns surrounding golden parachutes.
Zusammenfassung der Kapitel (Chapter Summaries)
I. Introduction: This introductory chapter defines golden parachutes as substantial remuneration packages for managers upon termination following a triggering event, typically a hostile takeover. It establishes the essay's objective: to critically assess the usefulness of golden parachutes through a microeconomic lens and explore potential solutions to the inherent conflict of interest. The chapter lays the groundwork for the subsequent analysis by highlighting the controversial nature of golden parachutes and their significant financial implications, setting the stage for a detailed examination of the arguments for and against their use. It provides context by referencing the adoption of golden parachutes in the late 1970s and early 1980s and cites various authors who have studied this phenomenon, introducing a variety of perspectives on their definition and implications.
II. Main body: This section delves into a comprehensive analysis of the arguments for and against golden parachutes. It begins by acknowledging the debate surrounding executive compensation, particularly the high figures associated with golden parachutes. The chapter then presents evidence from various studies, examining the positive impact on attracting and retaining talent, reducing conflict of interest during takeovers, and potentially benefiting stockholders through increased takeover premiums. However, counterarguments are also explored, including concerns about wealth transfers from shareholders to executives, reduced managerial discipline, and negative market reactions associated with golden parachute policies. The chapter presents both sides of this complex issue in a balanced and detailed manner, using substantial supporting evidence to illustrate each argument.
Schlüsselwörter (Keywords)
Golden parachutes, executive compensation, corporate takeovers, shareholder wealth, conflict of interest, microeconomics, managerial discipline, wealth transfer hypothesis, Tobin's Q ratio, talent acquisition and retention.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this text?
This text provides a comprehensive overview of "golden parachutes," substantial remuneration packages for managers upon termination following a triggering event, typically a hostile takeover. It analyzes the economic and ethical implications of this practice using microeconomic principles and explores arguments for and against its use.
What are the key themes explored in this text?
The key themes include the economic impact of golden parachutes on shareholders and firms, their role in attracting and retaining top talent, the conflict of interest between executives and shareholders during takeovers, their effectiveness in mitigating risk for executives, and potential solutions to address the ethical and economic concerns surrounding them. The text also examines the debate surrounding executive compensation and uses German regulations as a case study.
What are the objectives of this essay?
The essay aims to evaluate the effectiveness of golden parachutes for business leaders using microeconomic principles. It critically examines arguments for and against banning this practice and proposes solutions to the resulting conflict of interest.
What are the main arguments for golden parachutes?
Arguments in favor suggest that golden parachutes can attract and retain top talent, reduce conflicts of interest during takeovers, and potentially benefit stockholders through increased takeover premiums.
What are the main arguments against golden parachutes?
Counterarguments express concerns about wealth transfers from shareholders to executives, reduced managerial discipline, and negative market reactions associated with golden parachute policies.
What kind of solutions are proposed in the text to address the concerns surrounding golden parachutes?
The text proposes solutions for addressing the ethical and economic concerns surrounding golden parachutes, though the specifics of these solutions are not detailed in the provided preview.
What is the structure of the text?
The text is structured into an introduction, a main body (which further divides into sections discussing arguments for and against golden parachutes, and a problem-solving approach), and a conclusion. It also includes a table of contents, objectives and key themes, chapter summaries, and keywords.
What are the key words associated with this text?
Key words include: Golden parachutes, executive compensation, corporate takeovers, shareholder wealth, conflict of interest, microeconomics, managerial discipline, wealth transfer hypothesis, Tobin's Q ratio, talent acquisition and retention.
What is the scope of the analysis in this text?
The analysis uses microeconomic principles and draws upon various studies and existing literature to support its arguments. It provides a balanced view of the debate surrounding golden parachutes.
What is the target audience of this text?
The target audience appears to be academic, given the focus on structured analysis and the use of microeconomic theory. The reference to German regulations suggests a potential focus on a specific legal and economic context.
- Quote paper
- Jochen Kasper (Author), 2013, Golden Parachutes. Pros, Cons and a Problem-solving Approach, Munich, GRIN Verlag, https://www.grin.com/document/276544
