Eli5: How do CEOs from failing companies bail out with golden parachutes? Where does the money come from?
In: Economics
Retainer agreements, sometimes in the form of cash on completion of a bankruptcy or something.
Because even while a company is going bankrupt, it still has liabilities, it has creditors, sometimes there’s room for negotiation, sometimes there’s a Chapter 11 where the company can continue to operate, and even in the worst cases, there’s assets to sell off to recover as much value for the shareholders as possible.
At the same time, a good CEO or CFO who’s capable of doing all those things isn’t going to sign on to a failing company because it won’t shine on their career. So, they’ll have a golden parachute or golden handcuffs wherein they’ll get a bonus for doing their job well while winding down the business or laying off 80% of the employees or trying to find a Private Equity firm to sell themselves to.
If the company is still worth like 500M, it would be worth it to offer a 10M bonus for the exec team to stay until the job is finished so your equity isn’t hanging there even if the company is going down the drain. Sure it might have been worth 10B before, but 10M is cheap to save 500M
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