Golden Handshake

What is a golden handshake?

A golden handshake is an executive employment contract that gives an employee a significant severance package if they lose their job due to firing, restructuring, or scheduled retirement. Severance packages typically include cash, equity, stocks, and some company perks. 

Senior managers or key employees usually receive golden handshakes to entice them to start or continue working for an organization. In exchange for a golden handshake, the employee agrees not to make damaging comments about the organization during and after their departure.

Occasionally, employees without executive-level status receive a golden handshake as a bonus. However, it’s usually worth much less than top-level executives' packages and is often known as a “silver handshake". 

Companies can use benefits administration software to plan and administer employee benefits packages and ensure compliance with government regulations. This software helps manage employee benefits, such as insurance plans and stock options, and allows for open enrollment periods through an administrative dashboard. Organizations may also use this software to view and adjust employee benefits packages. 

Advantages of a golden handshake

For top-level executives, golden handshakes act as security for their futures. Some other advantages to this type of severance package are: 

• Protection against risks. Working as a high-level executive in a company comes with a high level of risk. For example, if an older senior leader is laid off and unable to find work because of ageism, their financial situation is safe because of their severance package. Additionally, executives bear high stress levels as they constantly make key decisions that significantly impact the company. Golden handshakes serve as an incentive and compensate for the risks executives undertake.
• Better employee recruitment. Companies use attractive financial packages to win top talent from rival companies. Having a golden handshake can be used in recruitment marketing tactics.
• Financial stability. Even during times of unemployment or while searching for better opportunities, golden handshakes provide employees with financial stability and alleviate finance-related stress.
• Guaranteed retirement packages. Whether or not employees plan their retirement, a golden handshake gives employees a competitive retirement package.

Disadvantages of a golden handshake

While there are advantages to golden handshakes, they also have drawbacks. One main criticism is they can damage a company’s public reputation as executives reap the rewards of company failure. Other criticisms are discussed below. 

• It’s not necessarily performance-based. A golden handshake doesn’t stipulate that an employee has to maintain a certain level of productivity during their employment. Therefore, this may result in losses for the company. Even if a company decides to terminate the employee based on poor performance, they’re required to provide the benefits agreed upon in the contract. 
• It may cause a conflict of interest. Executives are typically offered a sizable amount of money in golden handshakes, which could motivate them to engage in activities detrimental to the company to receive their package sooner. 
• It can force early retirement. Companies may use golden handshakes to force early retirement when they’re looking to cut operations costs. More specifically, when companies use golden handshakes to lay off older or more senior employees, this is known as “the golden shove”.
• The non-compete clause may affect future plans. Once executives agree to a golden handshake, they can’t open a rival business for a predetermined time after being terminated. 

Golden handshake vs. golden handcuffs vs. golden parachute

The main differences between a golden handshake, golden handcuffs, and a golden parachute are how they're used by the company in relation to the employee.