Why do golden parachutes matter to investors?
Golden parachutes matter to investors in big ways because they involve funds that will disappear into an executive's account if the company is purchased and the executive is let go or if the executive is terminated for specific reasons. They have to be considered as a company debt. Even though golden parachutes don't show up on balance sheets, they can seriously affect the bottom line.
We're not talking about a few bucks; these are often hundreds of millions of dollars. Take the social media platform formerly known as Twitter, for example. When Elon Musk bought the company, he immediately fired three top executives who had golden parachutes that were estimated to be worth a total of about $122 million in cash and $65 million in shares -- a big chunk of money added to the cost of acquisition that any investor would want to consider.
When there's a merger on the horizon, a good investor will look into these golden parachutes to see what its potential effects on the company. If they think it's going to cause a major hit and high-level people will be terminated en masse, it might be time to sell; if they think the golden parachutes won't be a problem, but enough other investors are worried and the stock drops, it might be time to buy.