Golden Handshake

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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1. 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.
2. 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.
3. 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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1. 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.
2. 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.
3. 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)

Related Finance Terms

• Severance Package
• Early Retirement Offer
• Executive Compensation
• Voluntary Redundancy
• Non-compete agreement

Sources for More Information

• Investopedia
• Corporate Finance Institute
• Business Standard
• Financial Times Lexicon