For CEO's, it called The Golden Parachute.
An employment agreement that guarantees a key executive lucrative severance benefits if control of the company changes hands followed by management shifts. Lucrative benefits given to top executives in the event that a company is taken over by another firm, resulting in the loss of their job.
Benefits include items such as stock options, bonuses, severance pay, etc.
These contractual agreements are established during job negotiations (usually done through that executive's agent) prior to top executives (approved by the company's Board of Directors) being officially hired.
Fannie Mae fired its previous CEO, Franklin Raines, an African American, in December 2004 after accounting errors forced the company to restate profits by $9 billion. His golden parachute: receives an annual pension for life of $1.37 million when he retired from Fannie in late 2004.
Raines was also in line to receive $5.8 million in stock options and $8.7 million in deferred compensation to be paid through 2020, according to a U.S. regulatory filing. Raines was Fannie Mae CEO from 1991 until 2004.
It does not matter if the entity goes belly up. The parachute is already factored into the CEO's final compensation package which is just the exact opposite for everyday working folk, the Severance Package.
A severance package is pay and benefits an employee receives when they leave employment at a company. In addition to the employee's remaining regular pay, it may include some of the following:
An additional payment based on months of service.
Payment for unused vacation time or sick leave.
A payment in lieu of a required notice period.
Medical, dental or life insurance.
Retirement (e.g., 401K) benefits.
Assistance in searching for new work, such as access to employment services or help in producing a rÃ©sumÃ©.
Severance packages are most typically offered for employees who are laid off or retire.
Sometimes, they may be offered for people who resign, regardless of the circumstances; or are fired.
Policies for severance packages are often found in a company's employee handbook, and in many countries are subject to strict government regulation.
Severance contracts often stipulate that the employee will not sue the employer for wrongful termination or attempt to collect on unemployment insurance, and that if the employee does so, then he must return the severance money.