A golden parachute is a contract provision that protects company executives. Should a target company undergo a merger or acquisition, key executives who get laid off are guaranteed large financial compensation under the golden parachute contract provision. Such compensation is often provided in the form of cash bonuses, stock options and/or a generous severance packages.
In some cases, golden parachutes are used to prevent takeover. This is because if the takeover firm sees that they'll have to potentially give millions of dollars to fired executives upon acquisition, they may decide against completing their acquisition pursuit.
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