The golden parachute rules (under section 280G
) are intended to discourage excessive compensation payments to executives in the event of a CIC (change-in-control benefits) by imposing negative tax consequences to both the company and the recipient. Under the rules, if the present value of a CIC payment to an executive exceeds his/her “safe harbor” (three times the executive’s average taxable compensation over the five most recent calendar years preceding the CIC or their “base amount”), the company loses tax deductions for the amounts considered “excess parachute payments.
” That’s where “the golden parachute” and 280G
come into action; the 280G
is basically a way to keep golden parachutes under control (also think “golden handcuffs”). Additionally, the executive is required to pay a 20% excise tax on the excess payment. In order to discourage these excess payments (and thus the taxation), Section 280G
has been added to the IRC by Congress. Hatch & Associates, among other things, make sure that (while using what 280G
stands for) an executive receives their safe harbor (which can be up the three times their base amount) upon termination.