High severance pay for top managers
Other Names: Golden parachute severance agreements
Nature: Managing directors and other top managers are often guaranteed from one half to one full year's salary at the conclusion of their contracts. This could be more than $1 million in addition to salary after only 2 or 3 years work. There is little evidence that a single manager adds this level of profitability to any company.
Incidence: In 1991, more than half of the biggest US companies had "golden parachute" severance agreements, an increase from 35% in 1987.
Claim: High severance pay for managers is just a way for fellow directors to pave the way for their own high severance pay. It buys the loyalty for a year of the manager while they are at another company thus assuring secrets from one company don't go to another along with the executive.
Counter Claim: High severance pay of a departing manager reassures managers staying with the company that they too will be treated well when they leave or retire.
Problem Type: E: Emanations of other problems
Date of last update 01.01.2000 – 00:00 CET