A golden handshake is a stipulation in an employment agreement which states that the employer will provide a significant severance package if the employee loses their job. It is usually provided to top executives in the event that they lose employment because of retirement, layoffs or for negligence. However, payment can be made in several ways, such as cash or stock options.
Benefits of Golden Handshake
- A golden handshake is a kind of protection that will act as a shield in times of distress or during adverse conditions.
- It acts as a guarantee from the employee to the employer that he will not sue the company for his lay-off.
- A golden handshake is a promise from the employee that he will not join any competitor after his leave from the firm.
- The employee gets the necessary time to decide whether he wants to join a company and find a new job.
- The money and other compensation act as security for his future.
Disadvantages
- Sometimes the employees are dismissed from their post because of a specific reason or because of misconduct. But as they have the contract that makes them eligible for a golden handshake, the organization can do nothing.
- Sometimes employees have to find work after their dismissal from their current job. Yes, the future is somewhat safe but not fully safe as you will need the money throughout your life, and this severance pay cannot be enough for the rest of your days.
- A golden handshake is not tied to the performance level of an employee. The contract was signed beforehand, and if the employer wants to terminate the employment of an incompetent employee, he will even then have to pay him the decided amount as a severance package.
- Employees have no incentive to act in the company’s best interest after their pay-off.
Examples of Golden handshake
- ABC Company is a technological firm that needs new blood to move its company forward. It has decided to terminate the services of a senior employee who still has three years to go before his retirement and replace him with a younger employee who is more knowledgeable in technology.
- The company offers him a golden handshake which he accepts as the severance pay now includes a fat bonus, some shares, and a healthy bank cheque.
- Suppose a company decides to merge with another company and under the new terms it has to let go of its CFO Adam because the other company already has one. Adam has a golden handshake clause in his agreement.
- Even though he loses his job for no fault of his own, he can get a good package under the clause of golden handshake that was written at the time of his employment.
- He was also given four months of severance pay after being laid off so that he could find another suitable job.
- A golden handshake is a stipulation in the agreement between an employer and an employee. In some cases, millions of dollars have been allotted to executives.
Golden Parachute
A golden parachute is an agreement between a company and an employee (usually an upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. These may include severance pay, cash bonuses, stock options, or other benefits. Most definitions specify the employment termination is as a result of a merger or takeover, also known as “change-in-control benefits”, but more recently the term has been used to describe perceived excessive CEO severance packages unrelated to change in ownership.
Golden Handcuffs
Golden handcuffs, a phrase first recorded in 1976, refers to financial allurements and benefits that have the objective to encourage highly compensated employees to remain within a company or organization instead of moving from company to company. Golden handcuffs come in different forms, such as employee stock options, which endow only when the employee has been with the company or organization for a certain number of years, and contractual agreements, consisting of bonuses or other forms of benefits which must be repaid to the company if the employee leaves before the date agreed on. Golden handcuffs are frequently used for jobs that require rare and specialized skills or in a “tight labor market”, where jobs are more common than workers.
Golden Umbrella
A golden umbrella is a clause in an entrepreneur’s contract with their company, typically the CEO or COO that guarantees a certain payout for the risk they bear in starting the company. The down-side of a golden umbrella is that angel investors typically do not know the terms of a golden umbrella, thus a CEO may start a company, grow the company, and seek first-round and second-round venture capital. and then exit the company with a large pay-out.
Golden Boot
Golden boot compensation, also known as the Golden Boot, is an inducement, using maximum incentives and financial benefits, for an older worker to take “voluntary” early retirement.
