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What is ‘golden parachute’ that may entitle Twitter executives fired by Musk to millions

Tesla chief Elon Musk fired three of Twitter’s top executives including CEO Parag Agrawal. Historically, golden parachutes have been used as a safeguard against hostile takeovers.

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New Delhi: After months of deliberations, American billionaire Elon Musk finally acquired the micro-blogging platform Twitter earlier this week. Hours after he took over the company for which he paid USD 44 billion (Rs 3.62 lakh crore), Musk fired Twitter’s top brass, including CEO Parag Agrawal, CFO Ned Segal and Vijaya Gadde, head of legal and policy.

Agrawal and Segal, who were at Twitter’s headquarters in San Francisco when the deal was closed, were ‘escorted out’ soon after, sources told news agency Reuters

Twitter’s top employees are entitled to a safety net, commonly referred to as a ‘golden parachute’. 

However, Twitter’s new management may refuse to pay the compensation owed to its former top executives. Musk fired the executives “with a cause” which means he gave due justification that may “void that agreement” (golden parachutes), The New York Times reported, quoting sources. ThePrint has not been able to verify these claims independently.

In August, US-based corporate research firm Equilar had estimated that Agrawal alone could receive a USD 42 million payout if he is terminated after the takeover. Reports citing company filings now suggest that Agrawal, Segal and Gadde may be owed a payout amounting to over USD 122 million (approximately Rs 1,000 crore) as compensation.


Also Read: Twitter’s masthead has a new name—Elon Musk. What it changes for you


What is a golden parachute

A golden parachute is essentially a contract which entitles top executives of a company to substantial benefits in case they lose their jobs following a merger, takeover or acquisition. This measure is also known as a ‘poison pill’ since it can act as a safeguard against hostile takeovers.

The term golden parachute was first used to refer to the terms of employment offered to Charles Tillinghast Jr, a lawyer and investment banker who was appointed chairman of the Trans World Airlines (TWA) in 1961. A clause in Tillinghast Jr’s employment contract entitled him to a significant severance package since TWA’s creditors were trying to wrest control of the airline from business tycoon Howard Hughes at the time. 

According to a report by Time magazine, Tillinghast Jr’s golden parachute was never deployed during his tenure which ended in 1976.

The measure has since been a part of the terms of employment of many top corporate executives. 

President of The Walt Disney Company from 1995 to 1997, Michael Ovitz was offered a golden parachute that entitled him to claim USD 140 million in case his employment was terminated without just cause. Ovitz was fired for his ‘management style’ in 1997.

His whopping severance package was later contested by Disney, but a court ruled in Ovitz’s favour in 2005. 

Similarly, James M. Kilts, who oversaw the acquisition of The Gillette Company by FMCG giant Procter and Gamble (P&G) in 2005 as CEO of the former, received a severance package of USD 185 million post the acquisition. 

(Edited by Amrtansh Arora)


Also Read: ‘Hope Twitter will not stifle opposition’s voice’, says Rahul Gandhi congratulating Elon Musk


 

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