What is a Golden Bungee?
A golden bungee is part of an executive's agreement that provides significant financial benefits to the executive upon termination as well as the opportunity to "spring back up" into a new position after termination.
How Does a Golden Bungee Work?
For example, upon a change in ownership or a shake-up in management, a golden bungee clause in an executive's employment contract might specify that the executive will be granted special severance pay, bonuses, stock options, or other noncash benefits upon his departure from the organization. Then, the employee will come back to the new merged entity as a consultant, operating officer or other high-level position.
Theoretically, because the executive's own financial future is protected, he or she is free to make decisions about reorganizations, mergers, or sell-offs that are in the long-term best interests of the company, even though such actions may lead to his or her dismissal.
Why Does a Golden Bungee Matter?
Golden bungees are meant to help companies hire and retain top talent. At the same time, they increase compensation costs, which can pose an obstacle to completing transactions like mergers and buyouts. As a result, golden bungees are sometimes perceived as "poison pills" because the transactions, if they involve the dismissal of top executives, can be perceived as too expensive even if they will benefit the company overall.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
