Definition
A golden handshake is a substantial financial package or payout offered to senior executives, employees, or partners as an incentive for early retirement or resignation. It often includes cash benefits, stock options, or profit-sharing plans. The purpose of this agreement is typically to free up high-paying positions for succession planning or to reduce older staff numbers.
Phonetic
The phonetic spelling of “Golden Handshake” is: /ˈɡoʊldən ˈhændˌʃeɪk/
Key Takeaways
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- Golden Handshake is a term often used to describe a large financial compensation that companies offer to top-level executives or employees when they are leaving the company. This could be due to retirement, layoff, or firing.
- The purpose of the Golden Handshake is to ease the transition for the outgoing executive and to protect the company from any future litigation. The amount of money given is often substantial and can include cash, stock options, and other benefits.
- However, Golden Handshakes have often been a point of controversy. Critics argue that these large payout packages may not reflect the true value the executive provided to the company and may be disproportionate, especially in cases where the executive was fired for poor performance.
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- Golden Handshake is a term often used to describe a large financial compensation that companies offer to top-level executives or employees when they are leaving the company. This could be due to retirement, layoff, or firing.
- The purpose of the Golden Handshake is to ease the transition for the outgoing executive and to protect the company from any future litigation. The amount of money given is often substantial and can include cash, stock options, and other benefits.
- However, Golden Handshakes have often been a point of controversy. Critics argue that these large payout packages may not reflect the true value the executive provided to the company and may be disproportionate, especially in cases where the executive was fired for poor performance.
Importance
The term Golden Handshake is essential in business/finance as it refers to a significant severance package offered to executives or senior employees when they leave a company due to retirement, layoffs, or even sometimes a forced resignation. This lucrative termination package is typically in the form of cash benefits, stock options, or retirement packages that can be substantially higher than the standard redundancy package. It’s considered a recognition for many years of service, a method to protect both the company and the employee during transitions, or an incentive for voluntary retirements. However, its ethical implications may vary; while being advantageous to employees as a financial cushion during a career transition, it may sometimes be viewed as a reward for failure, particularly in cases of underperforming executives forced to resign.
Explanation
The primary purpose of a Golden Handshake, which is a significant financial package typically offered to senior executives, is to encourage an early departure or retirement from the company. This lucrative agreement is used as a method of facilitating organizational change, such as during mergers and acquisitions, restructuring, or management reshuffles, where the services of specific employees or executives are no longer needed. The offer aims to create a smooth transition by providing a financial cushion to executives leaving the company, potentially helping to mitigate any legal actions or conflicts that may arise from their exit. The generous financial sum within a Golden Handshake might include severance pay, stock options, and the accelerated vesting of equity contributions, and the payout is often hefty enough to persuade the individual to willingly leave their position. The advantage of using a Golden Handshake is that it can enable companies to bring in new leadership or make structural changes more rapidly, without needing to engage in protracted negotiations or face opposition from incumbent staff. However, these agreements are also subject to criticism when the payouts appear disproportionately large or are given to executives who are leaving under a cloud, leading to negative perceptions of the business’s governance practices.
Examples
1. IBM: Back in 2018, IBM offered the golden handshake to many of its employees, particularly those over the age of 60. IBM took this step to cut down on costs and also to make room for hiring new, young talent. The incentive package for leaving included extended health coverage and financial compensation, which was more than they would normally get upon resigning or retiring.2. Walt Disney Company: In 2019, Walt Disney made a series of golden handshake deals after its takeover of 21st Century Fox. The company aimed to reduce its headcount and costs by offering lucrative exit packages to senior Fox employees. This included both immediate financial payouts and continuous payments over a period. 3. HSBC: Back in 2016, prominent global bank HSBC undertook a significant restructuring operation that led to thousands of layoffs across the world. The senior employees who were laid off were offered golden handshakes – packages that even included a year’s worth of salary as compensation for their departure. This step was taken as part of their cost-cutting and restructuring program.
Frequently Asked Questions(FAQ)
What is a Golden Handshake?
A Golden Handshake is a large financial compensation package agreed to be paid to a senior executive who is forced to leave a company or organization due to retirement, layoffs, or even a merger.
What is the purpose of a Golden Handshake?
The purpose of a Golden Handshake is to compensate the executive for the early termination of their contract, or to incentivize them to leave the company, or to reward them for their service to the company.
Is a Golden Handshake the same as a severance package?
While they are similar, a Golden Handshake adds additional benefits such as bonuses or stock options to the typical severance package, which usually includes compensation for unused vacation and sick days and extended health insurance.
Who decides on the terms of a Golden Handshake?
The terms of a Golden Handshake are usually negotiated and agreed upon by the executive and the company’s board of directors.
Is a Golden Handshake mandatory?
No, a Golden Handshake is not mandatory. It is a voluntary agreement between the employer and the employee.
How is a Golden Handshake taxed?
The tax implications of a Golden Handshake can vary depending on the country and its taxation legislation. It is typically treated as income and taxed accordingly by most tax authorities.
Is a Golden Handshake ethical?
The ethical aspect of a Golden Handshake is subjective and depends on individual viewpoints. Some see it as a just reward for a dedicated professional, while others find it controversial, especially in cases where an executive is rewarded even after poorly managing a company.
Can employees apart from the upper executives receive a Golden Handshake?
Yes, there are cases when employees lower down in the company hierarchy receive such financial incentives. However, it is less common as Golden Handshakes are usually associated with senior management positions.
What are the benefits and drawbacks of a Golden Handshake?
The benefits include a smooth transition and maintaining goodwill. The drawbacks can include high costs to the company, potential shareholder disapproval, and negative public sentiment if the payout is seen as undeserved.
: Do all companies offer Golden Handshakes?
No, offering a Golden Handshake depends on the company’s policies and contractual agreements with its executives. Not all companies offer such packages.
Related Finance Terms
- Severance Package
- Early Retirement Offer
- Executive Compensation
- Voluntary Redundancy
- Non-compete agreement
