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Curbing the “Golden Parachute” Under Dodd-Frank

One attempt to curb incentive conflicts has been the “golden parachute” This device allows for pre-set compensation amounts if/when the manager leaves the corporation.  The concept behind this device was that, because managers know they might well be replaced when an unsolicited tender offer is made (if that offer is successful, of course) this might give management the incentive to resist takeover regardless of price or benefit to the shareholders.  By contractually assuring them that they will be generously compensated upon departure, the “golden parachute” can eliminate selfish managerial resistance to potential takeover offers.  Of course, the danger of this “golden parachute” concept is that, if you are too successful at reducing managerial resistance (i.e., you offer a parachute that is “too golden”) you might well incentivize management to sell the corporation too quickly, in order to take advantage of the generous exit compensation.  This, again, puts the interests of the management and shareholders at complete odds.   Exacerbating the disproportion between these two points of interest (via the Act’s required annual disclosure(s) and non-binding vote) does more to confuse the manager/shareholder relationship than it does to aid “consumer protection”.  It appears that the drafters of this Act have forgotten that golden parachute provisions were created to ultimately protect shareholders, not create an exclusive windfall for departing executives.

In summation, there are no apparent benefits whatsoever to the repetitive and misdiagnosed executive compensation disclosure provisions sections 951 & 953.  The parties who will benefit here are not the shareholders, and not the issuing company executives, but the lawyers who will be hired to implement these new provisions at the respective issuing companies.