Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Golden Bungee

What it is:

A golden bungee is part of an executive's agreement that provides significant financial benefits to the executive upon termination as well as the opportunity to "spring back up" into a new position after termination.

How it works (Example):

For example, upon a change in ownership or a shake-up in management, a golden bungee clause in an executive's employment contract might specify that the executive will be granted special severance pay, bonuses, stock options, or other noncash benefits upon his departure from the organization. Then, the employee will come back to the new merged entity as a consultant, operating officer or other high-level position. 

Theoretically, because the executive's own financial future is protected, he or she is free to make decisions about reorganizations, mergers, or sell-offs that are in the long-term best interests of the company, even though such actions may lead to his or her dismissal.

Why it Matters:

Golden bungees are meant to help companies hire and retain top talent.  At the same time, they increase compensation costs, which can pose an obstacle to completing transactions like mergers and buyouts. As a result, golden bungees are sometimes perceived as "poison pills" because the transactions, if they involve the dismissal of top executives, can be perceived as too expensive even if they will benefit the company overall.