Executive Severance Plans

Executive severance plans give executives compensation when they leave a company, usually negotiated at hiring, approved by the board, and written into contracts. Golden parachutes are large payouts that once brought tax advantages for companies, though regulations now limit those benefits after public backlash. Platinum parachutes go further, offering pay, benefits, and stock options, often used to avoid legal disputes or negative media coverage. Federal rules require companies to file reports on top hat plans and follow IRS regulations on deferred compensation, which have grown more complex since 2005. The SEC oversees disclosure of executive pay, with reforms in the 1990s making reporting clearer and holding boards more accountable. The Sarbanes–Oxley Act of 2002 added stricter standards for corporate responsibility and financial transparency in response to scandals. Later, the Dodd–Frank Act of 2010 introduced shareholder “say-on-pay” votes on executive compensation, though these votes are nonbinding. Overall, severance plans must reward executives, limit company risks, and comply with changing rules.