Golden Parachute Law and Legal Definition

A golden parachute is a contractual provision in the employment contract of a key executive that provides special protection if that executive should be subject to termination if another company took control of the organization through a merger or acquisition. A golden parachute can be used as a strategy to thwart an unwanted takeover attempt.

Golden parachutes may include a variety of benefits, including not just extended salaries and cash payouts but also early vesting of stock options, bonuses, pensions and other benefits. There are complex rules governing parachutes and their tax treatment. Payments made to executives for services they provide after a change in control are not part of the golden parachute for tax purposes.