Golden Parachute Arrangement

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Golden Parachute Arrangement

Golden Parachute Arrangement means:
a lucrative contract given to top executives of a company It provides lavish benefits in case the company is taken over by another firm, resulting in the loss of an executive's job. A golden parachute may include generous severance pay, stock options, or a bonus payable when the executive's employment at the company ends. If this excess severance pay (1) is contingent on a change of ownership of the company and (2) is equal to or exceeds three times the employee's average annual compensation, the employer is denied a tax deduction. Further, a 20% excise tax is imposed on the recipient, which is withheld at the time of payment. The disallowed and taxable amount is the excess of the compensation over a base amount (5-year average of the employee's compensation). Former IRC (check if this IRC provision is current here) §§280G and 4999.

See Excise and Excise.

Description and Definition of Golden Parachute Arrangement

An agreement between a senior executive and his company that provides that if the company merges or is taken over the executive will receive a large sum of money or other benefits. The IRS limits the amount of payments made under a golden parachute arrangement that a company can deduct.


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