When corporations fall apart, usually the employees suffer too. In the case of high-ranking executives, when their companies start to crumble they get rich…well, richer.
The seemingly fall from grace that corporate executives experience as they exit their respective companies are cushioned by a shiny, golden parachute. This parachute consists of significant financial benefits to an employee—usually higher level—upon termination. As defined by Investopedia, these financial benefits may include but are not limited to cash, stock options and generous severance pay.
Corporate America reigns to be a seemingly elite society where anything goes. Where money is involved, problems tend to follow. Those who are employed by corporations are responsible for working and making the best decisions to benefit the company. Despite this, the ethics begin to get a little cloudy when a monetary incentive leads one to act out of personal interest.
The lucrative setup currently in place really offers a disincentive for officials to do their best for an organization. On the off chance a president or chief financial officer gets a payout—which is frequently significantly more than their standard compensation and reward—it can be progressively productive for them to perform inadequately and get terminated than to succeed, according to a study conducted by Associated Press.
It’s not that severance packages being allocated to employees is unusual, because in the business world it is common practice. The problem lies not in the mere existence of guaranteeing your employees financial security but the difference in the discrepancy between the payouts of mid-level employees and high ranking executives.
The dollar amount of the average employee is usually based on the time they have put into the company. According to a study led by Bloomberg, the payouts of CEO’s ranged from $55 million to $358 million. There is virtually no comparison to the average level employees’ payout, which amounts to not even a quarter of their severance.
The bar is relatively high for these employees in comparison to the executives who are guaranteed high sums of money regardless of their performance. Creating this unfair environment disputes the notion money is the reward for hard work.
Not only are these executives with golden parachutes making it harder to invest in companies and reap benefits as a shareholder, but they are further stretching the wealth gap. While the average man is being told pull himself up by the bootstraps and work harder, the wealthy are fired and given large sums of money for not working hard.
A study done by graduates of Harvard Law School, “Golden Parachutes and the Wealth of Shareholders,” shows “companies that adopted golden parachutes have lower (risk-adjusted) stock returns relative to those that didn’t—both during the two-year period surrounding the adoption and in the next several years.” What all of that means is the average day investor is suffering and being subjected to faulty stock options as a result of hefty golden parachutes.
The capitalist society we live in is framed around financial motivation. We work to get money. In this case, the golden parachute that is guaranteed to executives is going against that entire framework.