By ‘golden parachutes’ I mean the fact that some CEO’s get huge compensation packages even if they run a company into the ground. Stefan Molyneux has a video where he argues that golden parachutes are due to the introduction of income taxes on pay over $1 million, the requirement of CEO compensation being made public, and other such reasons: http://www.youtube.com/watch?v=tOHcfiMwlAQ
Is this accurate? Why are there ‘golden parachutes’?
Because shareholder rights have ceased to exist.
When you ask “why do they exist” are you really asking “what’s the justification for them?”
Yes, from the standpoint of the corporation’s board.
Dunno, probably depends on the company.
If a company does nto make an attempt to make good on whatever contractual agreement they came to, it may cause problems for them if/when they need to hire a new CEO. They may find their options limited to Men of less quality.
I never thought about the pay being publicized however, that’s rather novel. Quiet frankly if I made that much it is very likely I would never donate anything to anyone. They already give half their pay to the public.
So, I guess it’s just like a supercharged severance package? It seems counterintuitive that people would receive a huge amount of money for doing a poor job. However, maybe that is just the price that has to be paid to attract top talent? Similar to how the POTUS gets a six figure salary for the rest of his life.
Which of the 2 companies will tend to have the more eager people to try to work really hard, work long hours, etc.
The firm that does have a ‘grand prize’ if you make it to the top or the firm that doesn’t have such a grand prize when you make it to the top?
That is one; there are probably many different variables why firms make such decisions. It’s not really economics, but entrepreunerial thinking.
In many cases the golden parachute is not a lump cash sum given, but in all sort of other things like stocks, bonds, etc. So I would be willing to bet that IRS tax codes and regulations have created the environment where these packages make the most sense tax wise. For both the corporation and CEO.