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Finance a la shmoop what are golden handcuffs and what's a golden parachute?

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well guess what there are several types of good things golden but because we're [Trump dossier folder opens]

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a PG rated site I will just discuss the financial flavours so both of these

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flavors of gold have to do with star CEO CFO CTOs and other c-level rock star

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officers that the company definitely wants to retain and keep happy so you

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can imagine a CEO being given a big fat pot of a million stock options just at [CEO picks up pot of stocks]

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the point where the company has escaped bankruptcy is on the mend and has fired

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the old management and brought in new talented players who can sink holes in

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one at will open up China with no taxes and part the Red Sea the stock has been

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sitting in purgatory at five bucks a share forever and at only a modest stock

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market like multiple the stock would be trading at twenty five dollars a share [Stock value rises]

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well should the company get a little lucky and could go to 40 so if that CEO

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is granted what will become golden handcuffs in the form of a million stock

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options with a five dollar strike price which then end up being twenty dollars

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in the money on the twenty five dollar stock price that comes from their hard

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work well then that CEO will have vested over say four years into those

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golden handcuffs only if she stays at the company throughout that vesting

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period and yeah that's four or five years something like that usually so [Man discussing vesting period]

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said another way in order to actually earn ownership of those highly valued

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stock options the CEO must continue stewardship of the company for all four

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or five years of what is called vesting or letting time pass such that she [Clock ticking by]

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fulfills her contractual obligations in running the company and then she

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benefits from the economic gains she's created in doing so like she participates

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in the wealth created for all the shareholders of the company alright so

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that's a golden handcuff and what's a golden parachute well if that CEO ended [Golden handcuffs appear]

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up doing a great job for her initial four years and the stock had run up to

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forty bucks a share and the board still wanted to keep her on as CEO well then

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one of the great benefits she might be able to negotiate for is a golden [Image of golden parachute appears from folder]

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parachute which is a big benefit and generally refers to the notion that if

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she is ever fired without cause or if the

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company is purchased by Google or whoever

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after only say a year and a half or so into her four year vesting period

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or tenure well then she receives what is called full vest on change of control

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and that benefit basically means that if she had 48 months of vesting to then

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vest into the incremental million share she was granted at forty bucks with

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the acquisition being done at a sixty two dollars a share and those shares now

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being twenty two dollars in the money well she'll have been at the company for [Month 18 appears]

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only eighteen out of the forty eight months of vest so that in theory with

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eighteen over forty eight equalling thirty seven and a half percent well

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then she would in theory only get that percentage of the twenty two million in

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gains that her stock options represent or eight point two five million bucks

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but with golden parachutes like full vest on change of control while she's [Man parachuting]

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guaranteed the full payout of that twenty two million dollars

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yes it's an enormous amount of money often way more than what star pro

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athletes earn when money rains down in buckets in the locker room after a tough [Man taking a shower]

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game they've just won you know in a different kind of shower

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