Golden Coffin

What Is a Golden Coffin?

The term golden coffin refers to a death benefit package awarded to the heirs of high-ranking executives who die while still employed with a company. Benefits awarded can include unearned salary, accelerated stock options, and insurance proceeds. Provisions of golden coffins are normally outlined in an executive's contract including which benefits are paid, to whom, and for how long after the individual dies. Although these perks are often criticized, proponents say they are rarely paid out.

Understanding Golden Coffin

High-ranking executives are the most important individuals in a company. These professionals collectively make up the C-suite and include a company's chief executive officer (CEO), chief financial officer (CFO), and chief operating officer (COO), among others. These individuals are eligible for a number of incentives as part of their compensation packages. These perks include a base salary and any deferred compensation, which is paid out at a later date for tax purposes. Also included are things like stocks, option grants, retirement packages, insurance policies, health benefits, and other personal benefits such as travel reimbursements. Everything that the executive receives is noted in their contract, including the perks that make up a golden coffin.

Golden coffins have been part of executive compensation for several decades and are commonly granted to executives of public companies. They essentially extend certain benefits to the heirs of an executive after they die. As noted above, executive contracts normally outline which benefits are paid out by the company and for how long, along with the name and relationship of the heirs. For instance, pay consultants trace one of the earliest golden coffins to Armand Hammer of Occidental Petroleum. His contract called for his salary to be paid to his family until his 99th year, whether he was alive or dead. He died at 92 in 1990.

Though not all companies provide them, the most common posthumous benefit is the acceleration of unvested stock options and grants of restricted stock. The rationale is that if the executive hadn't died, they would probably have stayed long enough for the awards to vest. Accelerated unvested stock awards after a death can amount to tens of millions of dollars. Some promise large posthumous severance payouts, supercharged pensions or even a continuation of executives' salaries or bonuses for years after they're dead.

Special Considerations

Executive compensation is a highly contentious issue. It's often criticized because executives are almost always extremely well-compensated when compared to other company employees. This is even more apparent when companies do poorly. For instance, it isn't uncommon for members of the C-suite to be given great packages when their companies end up in the bankruptcy process, while the benefits of other employees are restricted.

The actual amounts that companies agree to pay as part of their golden coffins were revealed only after a federal rule change in 2006. This change mandated publicly-traded companies to reveal the payout figures for executives in case of death. Critics say the practice is a violation of the pay-for-performance principle in which executive compensation is closely tied to that of the company's performance. Death benefits entitle the families of executives to compensation, even though they play no role in the company's performance. The phenomenal rise in executive salaries, coupled with stock awards and perks, provides more ammunition to golden coffin critics, who claim that executives are already well-compensated during their lifetime.

But proponents of the practice point to the fact that golden coffins are rarely been paid out. This means that they do not affect the company's top line in most cases. They are also an inexpensive method to retain talent during the executive's lifetime because it assures them that their loved ones will be well taken care of after death.

Golden Coffins vs. Other Golden Perks

Golden coffins are just one of the golden perks executives may be able to receive. Most public companies include golden coffins with other types of compensation—when and if executives are terminated, if they become disabled, or if they retire. The following are some of the other most common golden perks:

• Golden Parachute: This is a clause in an executive's contract that guarantees a large payout or severance package should the executive be terminated in the event of a merger, acquisition, or takeover. Details of the payout are provided in the executive's contract.
• Golden Handshake: This perk provides an executive with a (large) payout if they lose their job due to retirement, negligence, or are laid off. Just like any other perk, terms and conditions of a golden handshake are outlined in the executive's contract.

Example of Golden Coffin

Suppose Raphael is the 62-year-old CEO of a publicly-traded corporation. A golden coffin arrangement is included as part of his employment agreement. Upon Raphael's death, his wife and son are eligible to receive 75% of his $1.5 million salary for the next ten years and can vest his substantial stock options worth approximately $10 million—at the time that the agreement was drawn—immediately. Other perks that may be part of the golden coffin include a car allowance of $150,000 per year and possession of a villa that the company purchased and refurbished for him after he was hired.