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Finance: What are Golden Handcuffs/Golden Parachute? 9 Views
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Description:
"Golden handcuffs" refers to someone vesting into their stock options by sticking it out at their company. It won't go on their permanent record.
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Transcript
- 00:00
Finance a la shmoop what are golden handcuffs and what's a golden parachute?
- 00:07
well guess what there are several types of good things golden but because we're [Trump dossier folder opens]
- 00:12
a PG rated site I will just discuss the financial flavours so both of these
- 00:16
flavors of gold have to do with star CEO CFO CTOs and other c-level rock star
- 00:22
officers that the company definitely wants to retain and keep happy so you
Full Transcript
- 00:26
can imagine a CEO being given a big fat pot of a million stock options just at [CEO picks up pot of stocks]
- 00:32
the point where the company has escaped bankruptcy is on the mend and has fired
- 00:36
the old management and brought in new talented players who can sink holes in
- 00:40
one at will open up China with no taxes and part the Red Sea the stock has been
- 00:45
sitting in purgatory at five bucks a share forever and at only a modest stock
- 00:50
market like multiple the stock would be trading at twenty five dollars a share [Stock value rises]
- 00:55
well should the company get a little lucky and could go to 40 so if that CEO
- 00:59
is granted what will become golden handcuffs in the form of a million stock
- 01:05
options with a five dollar strike price which then end up being twenty dollars
- 01:09
in the money on the twenty five dollar stock price that comes from their hard
- 01:12
work well then that CEO will have vested over say four years into those
- 01:17
golden handcuffs only if she stays at the company throughout that vesting
- 01:22
period and yeah that's four or five years something like that usually so [Man discussing vesting period]
- 01:25
said another way in order to actually earn ownership of those highly valued
- 01:30
stock options the CEO must continue stewardship of the company for all four
- 01:35
or five years of what is called vesting or letting time pass such that she [Clock ticking by]
- 01:40
fulfills her contractual obligations in running the company and then she
- 01:44
benefits from the economic gains she's created in doing so like she participates
- 01:48
in the wealth created for all the shareholders of the company alright so
- 01:52
that's a golden handcuff and what's a golden parachute well if that CEO ended [Golden handcuffs appear]
- 01:56
up doing a great job for her initial four years and the stock had run up to
- 02:00
forty bucks a share and the board still wanted to keep her on as CEO well then
- 02:04
one of the great benefits she might be able to negotiate for is a golden [Image of golden parachute appears from folder]
- 02:08
parachute which is a big benefit and generally refers to the notion that if
- 02:13
she is ever fired without cause or if the
- 02:15
company is purchased by Google or whoever
- 02:18
after only say a year and a half or so into her four year vesting period
- 02:22
or tenure well then she receives what is called full vest on change of control
- 02:28
and that benefit basically means that if she had 48 months of vesting to then
- 02:33
vest into the incremental million share she was granted at forty bucks with
- 02:38
the acquisition being done at a sixty two dollars a share and those shares now
- 02:41
being twenty two dollars in the money well she'll have been at the company for [Month 18 appears]
- 02:45
only eighteen out of the forty eight months of vest so that in theory with
- 02:50
eighteen over forty eight equalling thirty seven and a half percent well
- 02:53
then she would in theory only get that percentage of the twenty two million in
- 02:58
gains that her stock options represent or eight point two five million bucks
- 03:02
but with golden parachutes like full vest on change of control while she's [Man parachuting]
- 03:07
guaranteed the full payout of that twenty two million dollars
- 03:11
yes it's an enormous amount of money often way more than what star pro
- 03:15
athletes earn when money rains down in buckets in the locker room after a tough [Man taking a shower]
- 03:19
game they've just won you know in a different kind of shower
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