Golden Handshake Meaning Advantages Controversies

Golden Handshake Meaning

These are offered to employees to protect their interests in taking up a high-profile post with risks. In addition, to compensate for the risk level, the company has entered a suitable golden handshake package with its executives.

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#1 – Golden Handshake vs. Golden Parachute

A golden parachuteGolden ParachuteGolden parachute refers to the clause in the employment contract whereby the top-level executives entitled to receive significant benefits if the company faces a merger or takeover. Such benefits comprise liberal severance pay, cash bonus, retirement packages, stock options, etc.read more provides severance benefits to an employee in the event of termination of employment due to a merger or takeover, often called “change in control benefits.” It is, therefore, more limited in scope, whereas a golden handshake provides benefits even in the event of scheduled retirement. Both the benefits packages include cash and stock optionsStock OptionsStock options are derivative instruments that give the holder the right to buy or sell any stock at a predetermined price regardless of the prevailing market prices. It typically consists of four components: the strike price, the expiry date, the lot size, and the share premium.read more.

#2 – Golden Handshake vs. Golden Handcuffs

A golden handshake provides benefits to an employee when leaving an organization. In contrast, a golden handcuff is delivered to employees to remain with the organization. Golden handcuffsGolden HandcuffsGolden Handcuff is referred to the employer offering a valuable incentive to the employee to bind them and stay in the company for an extended period. For an employee to stay with an employer, the latter should provide a financial incentive, and the former should be in a position to accept the incentive.read more are benefits provided to the employees of an organization to discourage them from shifting to a different organization. Golden handcuffs ensure that high-value, skilled employees remain with an organization through the large benefits packages offered.

Advantages

To perform all senior-level tasks requires immense employee effort and involves various risk-taking levels. As a result, organizations offer hefty golden handshake packages to induce the employees to work for the company to compensate.When choosing an organization, an employee would be prone to choose one with a good salary package and one with good severance benefits. Organizations may use these attractive packages to lure high-ranking employees from rival companies.It helps the employees provide financial security during their instability and unemployment. In addition, it allows the employees to look for better opportunities without worrying about immediate fund requirements.

Controversies

Although the intent was to risk compensation and encourage top executives to stay with the organization, many negative impacts have been. Some of the controversies relating to golden handshakes are below: –

#1 – Not Performance-Based

Golden handshakes are provided to employees upon the termination of employment. There is no stipulation in the contract which provides that the employees should have performed well throughout their employment tenure. Even if the executives were fired on the grounds of non-performance, they would still be eligible to claim the benefits under this package.

There have been instances wherein, even when the company was incurring significant losses under the leadership of a particular executive. Many people were laid off due to this poor performance. Yet, the executive was still awarded the golden handshake at the time of termination of his employment.

#2 – Conflict of Interest

Golden handshake packages are substantial in value. However, sometimes, it may induce the executives to collect the package early and perform activities that negatively impact the company.

For instance, an executive may purposefully ensure that the company declares losses, which reduces its share prices. It may result in a merger or a takeover of the company. At the time of change of controlChange Of ControlThe term “change of control” refers to a situation in which the majority ownership of a company, and thus its business decision-making powers, shifts from one person to another.read more, the executive will be awarded the package.

Thus, awarding this does not induce the executives to perform well, keeping the company’s objectives in mind. Rather, it encourages negative and selfish behaviors.

#3 – Golden Shove

Companies may push for the early retirement of their employees for many reasons: to cut rising costs of operations, reduce the labor force and its related expenses at the time of a takeover or a merger, or respond to a change in the business environment. For example, a drop in oil prices led to many organizations laying off their employees to cut costs.

It has been contended that the companies have used golden handshakes to lay off older or senior employees – ‘The Golden Shove.’ However, organizations believe that they are a great alternative to layoffs. The practice compensates the older employees at the time of their employment termination. It simultaneously provides new and younger employees opportunities to join the organization and take over such posts.

Often, employees feel coerced into taking up the benefits packages offered and leaving the organization rather than being put in a situation where they fire without availing any benefits.

Conclusion

Regarding the golden handshake, shareholders have been given a say in valuing employee benefits packages, considering the growth of negative incidents. Although shareholders do not participate in the day-to-day operations or talent acquisition, the company ensures that they are informed about the employees’ packages during their periodical shareholders meetingShareholders MeetingShareholders Meeting means a meeting of the stockholders of the corporation wherein resolution are placed before the shareholders to discuss and approve the corporate matters and other matters required by the bylaws of the company.read more.

Golden handshake, originally intended to lure employees into taking up top positions with a company, has many controversies surrounding it. Therefore, it needs to be regulated properly and implemented to benefit the employees and the organization.