Business, Legal & Accounting Glossary
Golden handcuffs are various incentives offered to key executives to make sure they don’t leave the company. Golden handcuffs can take several forms. For example, golden handcuffs may entail deferred compensation, under which pay for past services are postponed to some future date. Golden handcuffs can also involve stock options, which the executive cannot exercise until after some length of service to the firm. Another form of golden handcuffs is restricted stock, which is transferred to the executive but remains subject to forfeiture if the manager leaves the firm at an early date, or does not reach certain performance goals. Note that golden handcuffs are also sometimes part of an anti-takeover strategy adopted in mergers and acquisitions. Under this golden handcuffs scenario, key staff immediately become vested in stock options once the company is taken over. With their golden handcuffs thus removed, many key executives will want to quit the firm, leaving the new owners without the experienced talent they need to run the company. This unlocking of golden handcuffs serves as a poison pill to discourage takeover attempts.
Golden handcuffs are a set of financial incentives designed to persuade employees to stay with a company for a set amount of time. Employers provide golden handcuffs to existing key employees as a strategy of retaining them and increasing employee retention rates. In businesses where highly rewarded personnel are likely to shift from one company to another, golden handcuffs are popular.
Employers spend a lot of money on hiring, training, and retaining critical personnel. Golden handcuffs are designed to help businesses retain personnel in whom they have invested, as well as to ensure that their best employees and top achievers do not quit the company. Golden handcuffs can have a negative connotation because they are frequently connected with people who are unhappy at their jobs but are unable to leave because the money loss would be enormous.
Golden handcuffs can be given out in stages when employees reach certain goals, or they might be given out all at once with specified conditions. Golden handcuffs come in a variety of shapes and sizes. Stock options, supplemental executive retirement plans (SERPs), hefty bonuses, holiday properties, a company car, insurance policies, and other benefits are just a few examples.
When these incentives are provided, they are subject to particular conditions. They usually indicate that bonuses or other forms of remuneration are only paid out if the employee stays for a given amount of time, or that if they are paid out initially, they must be returned to the company if the employee leaves before a specific date.
Contractual responsibilities that specify an action that an employee may or may not execute, such as a contract barring a network television host from appearing on a competing station, are another type of golden handcuff.
Golden Handcuffs refers to the combination of rewards and penalties given to key company employees that compensates them so generously for staying and punishes them so severely for leaving that it would be absurd for them to quit the company.
There are two ways to keep valuable people with a company. One is to reward them if they stay. The other is to penalize them if they leave. Many companies combine both approaches by mixing generous economic incentives with non-compete agreements and vesting schedules. If the combination of these incentives and disincentives is effective, they can act as golden handcuffs that prevent the employee from leaving. They do so by raising the employee’s expectations of wealth so high that he cannot meet those expectations with another employer, particularly when he considers the restrictions and penalties caused by his leaving.
For the past five years, Charles has been employed by firm XYZ. The organisation has invested a large amount of time and money in training and developing Charle’s skill set over the last five years. Charles has proved his great talent and capacity to work successfully for the firm within the same time frame. Because of his work ethic, not only has the expense of training Charles been returned to the company many times over, but he will be a valuable addition to the organisation for many years to come.
Because Charles is such an amazing employee, XYZ is concerned that he would be lured away by a competitor who may offer greater money or other benefits. To avoid this, XYZ provides Charles with a substantial financial incentive in the form of employee stock options. The stock options, on the other hand, do not vest for five years, ensuring that Charles stays with the company for those five years and does not miss out on a huge cash windfall.
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This glossary post was last updated: 7th January, 2022 | 0 Views.