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What Is a Golden Parachute?

Definition: Golden Parachute


Golden parachutes soften an executive's fall when the company she leads is acquired and there's a change in ownership, leading to the dismissal of the particular executive. The parachute is a predetermined amount in excess of an executive's normal compensation and may be a combination of stock options, bonuses, and severance pay.

Most recently, the term has appeared in the news because the CEOs of Fannie Mae and Freddie Mac were refused their golden parachutes when their companies were taken over by federal regulators. The government has refused to pay out the fired executives, whose packages are estimated to total up to $25 million, and it's not clear what the CEOs may end up taking away. One thing is clear: The collapse of Fannie and Freddie has already impacted the CEOs' net worth — since March, Fannie's CEO's stake in the company went down to $683,000 from $23.7 million.

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