Eli5: How do CEOs from failing companies bail out with golden parachutes? Where does the money come from?
In: Economics
A struggling company usually still have money. If they’re still making some money, they’re not insolvent, Even if they have more debt than revenue. As long as they’re still able to make their scheduled debt payments, they still have money. Now, struggling could mean their revenue is unable to cover any expenses or debt. Or revenue ceases, and they only have cash in savings. Then, they’ll file for bankruptcy. Bankruptcy protects certain assets from debt obligations. However, it doesn’t protect them from certain expense obligations. The expense obligations include wages, benefits, and severance.
So to pay severance to the CEOs, it could come from diminishing revenue, current cash on hand, selling off assets, or another company buying them out.
Latest Answers