Former Solid Energy chief executive Don Elder's contract was renewed on August 31 last year and Labour says it was a gift from outgoing chairman John Palmer.
The state-owned coal mining company is facing financial ruin and the Government has admitted it's been on the skids since 2011.
Mr Elder resigned on February 4 and Labour's state owned enterprises spokesman Clayton Cosgrove says the renewal of his contract presumably means he received a bigger golden handshake.
Most of Solid Energy's board resigned as well and Prime Minister John Key has blamed the company's former executives for catastrophic errors in forecasting the coal price and worthless investments in alternative fuels.
"The outgoing chairman gifted a new contract to chief executive Don Elder on the chairman's last day, August 31 last year," Mr Cosgrove said.
"That presumably would have meant that the taxpayer would have paid out substantially more in severance pay."
Mr Cosgrove says State Owned Enterprises Minister Tony Ryall would have known what was going on.
"The minister was receiving month to month monitoring reports in 2012 but didn't do anything."
It has previously been revealed that Solid Energy paid out $23 million in performance bonuses to its executives while the company was descending into financial strife.
The Government won't reveal how much Mr Elder was paid out.