Definition
A Golden Handshake is a financial term referring to a substantial severance package offered to top executives, managers or employees to encourage early retirement or resignation. It often includes cash bonuses, stock options, or other benefits. This generous package is typically used by companies to facilitate management changes or downsizing.
Key Takeaways
- A Golden Handshake is a clause in an executive employment contract where the employer provides a significant severance package if the employee loses their job through firing, restructuring, or even retirement.
- These agreements often provide the employee with substantial financial compensation or benefits based on their length of service, and are often provided to top executives as a sort of insurance policy.
- While Golden Handshakes can protect employees, they have also been criticized for potential misuse. This may include scenarios where underperforming executives receive large payouts, or situations that trigger the agreement for reasons other than the original intent.
Importance
The finance term “Golden Handshake” is significant as it refers to a large financial compensation that a company provides to an executive who is forced to leave or retire early. This term is especially important in the corporate world as it can have significant implications for both the departing executive and the organization.
For the executive, the golden handshake can provide a substantial financial cushion, acknowledging their time and contributions to the company. For the organization, it can assist in a smoother transition process by incentivizing the executive’s voluntary departure, typically at a time when the company is pushing for new leadership or restructuring.
However, golden handshakes can also be controversial due to the immense payouts involved, which sometimes lead to scrutiny from shareholders. The notion of golden handshakes underscores the value that organizations place on their leadership roles and how they navigate changes in these positions.
Explanation
A “Golden Handshake” is a clause in an employment contract where the employer agrees to provide a significant severance package if the employee loses their job. The main purpose of the golden handshake often involves the protection of high-ranking employees in the eventuality of termination, merger, or retirement.
These types of provisions not only offer financial stability to the employee in case of sudden job loss, but they can also serve as a form of incentive promoting mergers and acquisitions, as it ensures key employees are taken care of regardless of the company’s circumstances. On the other hand, Golden Handshakes commonly exist within the top executive level, where interruptions or abrupt endings in employment could produce substantial economic uncertainty.
The generous severance package involved provides a security net, which can make the job more attractive to potential candidates. Moreover, Golden Handshakes can also help an organisation ensure a peaceful transition of power, as they can incentivize older employees near retirement to leave early.
Although they have been often criticized for being overly indulgent and unnecessarily burdening for the company, they continue to be a popular tool for maintaining stability within high-stakes executive positions.
Examples of Golden Handshake
General Electric: When Jeff Immelt, a former CEO of General Electric, stepped down in 2017, he was given a retirement package valued at approximately $211 million, referred to as a “Golden Handshake.” This package included stock and options, pension benefits, and other perks that reflect his tenure and contributions to the company.
Verizon: In 2018, Verizon offered a “golden handshake” deal to about 44,000 long-standing employees. This was part of a voluntary severance program that offered up to 60 weeks’ salary, bonus and benefits, depending on the length of their service.
Hewlett-Packard: Former Hewlett-Packard CEO Carly Fiorina received a “golden handshake” worth about $21 million after being fired from her position in
The package included cash, stocks, and pension. This is often cited as one of the more heftier examples of Golden Handshakes.
FAQs about Golden Handshake
What is a Golden Handshake?
A Golden Handshake is a substantial financial package offered to senior executives, officers, or employees as a severance pay or retirement package. It’s usually provided to encourage the employee to retire early or resign. This package often includes cash bonuses, stock options, and other benefits.
Why is it called a Golden Handshake?
It’s referred to as a Golden Handshake due to the generous nature of the severance package, seen as a lucrative offer or ‘golden’ opportunity for the recipient.
What is the difference between a Golden Handshake and a Golden Parachute?
A Golden Handshake typically occurs when a company wants to incentivize an employee to resign or retire, typically during times of corporate restructuring or downsizing. A Golden Parachute, however, is a substantial financial agreement between a company and an executive, stating that the executive will receive significant benefits if the company is sold or merges and their employment is terminated as a result.
Are Golden Handshakes taxable?
Yes, Golden Handshakes are generally subject to both income tax and National Insurance Contributions. The exact tax treatment can vary depending on several factors so it’s recommended to seek professional advice.
Is a Golden Handshake legal?
Yes, Golden Handshakes are legal and often part of negotiated exit strategies. However, it’s important to ensure the process is transparent and complies with employment laws to avoid disputes or potential legal issues.
Related Entrepreneurship Terms
- Severance Package
- Retirement Package
- Executive Compensation
- Early Retirement
- Contract Termination
Sources for More Information
- Investopedia: It is a comprehensive resource dedicated to financial education and understanding different financial terms including ‘Golden Handshake’.
- MarketWatch: They provide up-to-date financial news, analysis and opinion. They cover various topics including ‘Golden Handshake’.
- Reuters: Known for its journalistic excellence in finance, Reuters also offers a deep dive into various financial terms, including the ‘Golden Handshake’.
- The Guardian: Known for its broad-sweeping coverage of world events, The Guardian covers a variety of financial topics and provides a robust understanding of terms like ‘Golden Handshake’.
