The President of Russia suggests to limit the amount of the “golden parachutes”

“Labour Disputes” magazine, No. 5, 2013.

V.V.Putin pointed out that compensations paid to top managers are excessive and suggested putting them “within sensible limits”. He indicated that the optimal amount of the “golden parachute” should stimulate the efficiency of the high-class management, but “reasonable limitations” should be observed. It is supposed that the Presidential initiative will be carried out with the account of recommendations of G20 regarding the respective payments to the banking organizations’ top managers.

Advocate Anna Kotova-Smolenskaya, Doctor at Law, Associated Partner of the Law Firm "YUST"

The initiative to limit the maximum amounts of the “golden parachutes” is connected to the cases of such compensations actually paid, which were widely acclaimed by the media, and the amounts of which did not escape attention. It is remarkable that the majority of such cases involves the so-called “companies with state-owned stock”, the activity of which has lately been more and more regulated by the legislation – in particular, a special law was adopted governing the general principles of purchases by such companies (Federal Law No. 223-AP dated 18.07.2011). There is no doubt that payment of a “golden parachute” to the general director should not create the situation, when the company incurs significant losses of its assets, even if those were earned thanks to the dismissed manager. It is also important to draw the distinction between the compensation for early termination of the employment contract (which is most often called “golden parachute”) and the bonuses for workplace achievements.

Article 279 of the Labor Code of the Russian Federation stipulates that, in the event of termination of the employment agreement with the leader of an organization under clause 2 of Article 278 of the LCRF, compensation is paid to him in the amount as determined by the agreement, but not below three monthly salaries. Therefore, such payment is of compensational and not encouraging nature. Hiring a top manager is difficult and time-consuming, that is why the law makers have stipulated the respective compensation for that category of employees. It also should be noted that the employer himself is sometimes interested in the payment of the “golden parachute” to the company top manager – for example, in exchange for the top manager’s obligation to not seek employment with the competitors during a certain period of time.

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The full version of the publication is available at the printed version of the magazine.