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Hefty termination deals are here to save you from steep fall

Hefty termination deals are here to save you from steep fall
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First Published: Wed, Jun 18 2008. 11 30 PM IST

(Illustration: Malay Karmakar/Mint)
(Illustration: Malay Karmakar/Mint)
Updated: Thu, Jun 19 2008. 05 35 PM IST
New Delhi: As concerns grow about the end of a golden run for India’s economy and its businesses, senior executives are beginning to contemplate golden parachutes or hefty termination deals that can protect them against uncertainties such as acquisitions, even a sudden and surprise downturn.
Listen to James Agrawal, BTI Consultants, put golden parachutes in context
“There has been a considerable rise in a number of top executives seeking golden parachute, especially in the past 18-20 months,” says R. Suresh, managing director, Stanton Chase India, an executive search firm.
A golden parachute is a clause in an employment contract or a separate contract that promises financial benefits to executives in the event of termination without a cause—for instance, in case of change in business plans or location of business, or because of takeover or change of ownership. It is a contractual compensation over and above legally entitled terminal benefits that includes severance pay, superannuation and other benefits such as deferred bonus, and pension, health and insurance benefits.
Experts say while the absolute number of employees seeking golden parachute in India is still quite small, the trend is catching up fast. “In the past two years, there has been almost 100% year-on -year growth in terms of sheer numbers,” says Ganesh Shermon, partner and head, human capital advisory service at audit and consulting firm KPMG India Pvt. Ltd.
(Illustration: Malay Karmakar/Mint)
Given the sensitivity of the issue none of the executive search firms or companies Mint spoke to wanted to discuss specific examples.
In recent months, the executives at the search firms say, three executives at Birla Sun Life, Citigroup, and Siemens India have joined a new insurance company, an Indian investment bank, and a telecommunications infrastructure company respectively, and all three have golden parachutes with their new employers.
Executives at search firms say that the number of executives seeking golden parachutes has increased with a rise in number of top-level moves.
“Jobs at such levels of similar work profile, stature and power are not plenty and therefore such moves are fraught with risks,” says James Agrawal, head, BTI Consultants India, an executive search firm. “Executives thus want their risks to be hedged and demand such clauses,” he adds.
Globally, golden parachutes have been prevalent for many years now. Generous financial benefits under golden parachute clause has attracted a lot of controversy and criticism from shareholders and investors since the clause does not set any performance goals. There have been cases where companies have reported huge loss, yet executives with golden parachutes have walked away with handsome financial gains.
For instance, Pat Russo, the chief executive of leading telecommunications equipment supplier, Alcatel-Lucent, was in headlines this year in May because of a £4.77-million golden parachute that she sought amid rumours of her dismissal.
Senior executives, even CEOs here don’t get payoffs of this magnitude, but the amounts aren’t as modest as most people think, say executives at search firms. Typically, the sum involved could range from two to three times the annual gross compensation. “Higher the risk in the business and the more challenging the role, greater the amount,” says Suresh.
In India, golden parachutes are still largely limited to new economy sectors such as information technology, telecommunications, media, insurance and financial services, say executives at search firms. These sectors are not only witnessing high growth, they also operate in a highly competitive environment.
Besides, there is a huge talent crunch, especially for the top positions, in these sectors as well.
“For top executives, companies go all out to tailor salary structures and employment contracts that are too attractive to resist,” says Dharmesh Srivastava, partner and a human resource and employment specialist at Fox Mandal Little, a leading law firm. Adds Shermon: “To attract talent, companies do put in an element of risk protection along with other wealth-creating opportunities.”
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First Published: Wed, Jun 18 2008. 11 30 PM IST