Golden Parachute

Golden Parachutes Often in a stack of current newspapers, the front page topics that will catch your attention are ethical issues behind upper management compensations; in this case, on March 30th 2009, the issue that surfaced was Rick Wagoner’s leave from GM and his retirement package and how his actual/ base compensation doubled in his last year from approximately $7M to $15M.(7) With the current economic crisis, many people outside the business society have become aware of the ridiculously high income difference between top managers and regular working citizens. For instance, terms such as ‘golden parachute’ have been put under the limelight and are scrutinized. Golden parachutes are severance pays to CEOs when they leave their company. The amount of money is usually influenced by the size of the business and the effort they put in. The golden parachute was once used to ethically to compensate CEOs who sacrificed their time and effort for the business; however, this is currently not the only case. Before we get into more detail, it is important to understand that the golden parachute once had a reason for being employed. With many mergers and acquisitions during the second industrial revolution, CEOs were offered compensations proportional to how much their effort was worth. According to the Journal of Business Ethics, this was an ethical standpoint because it was followed by two positive effects. First of all, golden parachutes encouraged mergers and acquisitions as opposed to bankruptcy. For instance, the CEO would choose to merge with a competitor and leave with an enticing amount of money. This minimized unemployment and loss of structural capital which is result of bankruptcy. Another positive effect in using the golden parachute was attracting an effective management team. Great CEOs are essential for the success of businesses, yet great CEOs are low on supply. As a result, golden parachutes can be ‘recruitment tool[s]’

Cited: 5) Lozano, Juan A. Sept. 9, 2008. Billions to be shared by Enron shareholders. USA Today. Retrieved April 27, 2009, from http://www.usatoday.com/money/economy/2008-09-09-46077463_x.htm 6) Business Definition for: interlocking directorate 7) Carter, Zach. Mar. 31, 2009. Weekly Audit: Workers Will Build the Recovery, not Wall Street. Open Left. Retrieved April 30, 2009, from http://www.openleft.com/tag/Rick%20Wagoner 8) Golden Parachutes: How the Bankers Went Down 9) Ben Hall, Peggy Hollinger. (2009, March). French demand bonus curb for aid. FT.com. Retrieved April 30, 2009, from ABI/INFORM Global database. (Document ID: 1670155761).