Eli5: How do CEOs from failing companies bail out with golden parachutes? Where does the money come from?
In: Economics
To highlight an important detail that these other answers touch on, related to “where does the money come from”.
Because the CEO parachute is specified in a contract, it is a liability that becomes a debt once the contract is triggered.
Even a bankrupt company tries to pay all its debts, and some of the debts have higher or lower priority (i.e. the company is obligated to pay debt X before it pays debt Y). A savvy CEO will ensure that their debt has high priority. Eg. it is in preferred stock, or some other type of debt that gets paid out before common stockholders and regular employees.
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