There are valid reasons for a company to lose a lot of money when it sacks an executive, but all that money should not necessarily go to that executive. Agreeing to an expensive penalty (”golden parachute”) upon sacking an executive commits the company to giving the executive time to implement his/her strategy. It shows commitment to the executive and works as a (self) commitment device for the company and its shareholders.

For this function of the golden parachute to work it is sufficient to lose a significant amount of money, but that could as well be spend on charity. A step in this direction can take away the impression of excesses that golden parachutes raise, while preserving (part of) its impact.