golden parachute investment & finance definition

Case Study After a rocky year that included embarrassing financial disclosures and a plummeting stock price, one-time high-flying Enron Corporation was forced in November 2001 to seek a major cash infusion to shore up its balance sheet. Improper accounting caused the Houston-based energy trading company to disclose that the firm would reduce four years of previously reported income by over half a billion dollars. The company was also forced to write down assets and reduce shareholders' equity. Competitor Dynegy, Inc., came to Enron's aid by proposing an all-equity $8.85 billion takeover. Enron's chairman, Kenneth Lay, was eligible for severance benefits under certain circumstances, including a change in management that resulted in a termination of his employment. Lay had worked at the firm since 1984, when it was a regional pipeline company operating under as Houston Natural Gas Company. The golden parachute was to pay Lay a lump sum of $20.2 million for each year remaining on his contract. The chairman had three years remaining at the time of the Dynegy offer, meaning he was entitled to receive a lump-sum payment of over $60 million. To the surprise of many, Lay announced at a meeting with Enron employees that he would waive his right to the severance pay. As it turned out, the Dynegy offer was shortly withdrawn and a month later Enron was in bankruptcy. Information released following the bankruptcy indicated that Enron executives had personally profited in financial dealings with the firm.