What are Golden Handcuffs?
Golden handcuffs are financial inducements and benefits (typically deferred) given to certain employees to encourage them to remain with the organization for a longer period of time.
- Golden handcuffs are deferred incentives given to certain employees to encourage a longer employment term.
- They are commonly used for senior management, employees with specialized skills, and high-performing employees.
- Golden handcuffs can come in many forms, including bonuses, employee stock options, and flexible working conditions.
Understanding Golden Handcuffs
Golden handcuffs are a type of employee retention tool and are commonly used for:
- Senior management
- Employees with specialized skills
- High-performing employees
In addition to the above, golden handcuffs are used in industries where demand for labor exceeds supply (i.e., labor supply is scarce). Golden handcuffs can come in many forms, such as:
- A highly inflated salary (a salary that is materially above the market salary rate)
- Employee stock options
- Additional paid vacation days
- Flexible working conditions
- A pension plan
- A company car
- A vacation home
It is key to note that incentives under golden handcuffs usually come with a time stipulation. For example:
- Requiring the employee to stay an “x” number of years before being able to exercise their employee stock options
- Repayment of bonuses if the employee quit within the next “x” years
- An additional “x” paid vacation days after each year of employment
- The ability to indulge in a vacation home, paid for by the company, after “x” years of employment
Golden handcuffs act to “trap” employees, as
- The financial inducements and benefits are typically deferred, requiring the employees to stay with the organization for an extended period of time; and
- The financial inducements and benefits are so attractive that the employees do not want to leave the organization. They know that they cannot find a similar compensation package elsewhere.
Why Use Golden Handcuffs?
Golden handcuffs play a vital role in an organization’s success – especially for organizations based in highly competitive industries.
Top talent is oftentimes hard for an organization to find and acquire. When an organization finds “top talent,” it is in its best interest to stop them from leaving. It is because such individuals usually contribute significantly to the current and continued success of the organization.
The key reasons behind using golden handcuffs include:
- To reduce the risk that top employees leave the organization prematurely, which would negatively impact business operations and profitability
- To entice top employees to create long-term company growth
- To keep top talent away from competitors
- To align employees and business owners
- To thank top employees for their tenure with the organization
Example of Golden Handcuffs
Colin joined Company A as a sales consultant three years ago. During the three-year period, he frequently received significant recognition from senior management as one of the organization’s top performers in terms of sales made and client retention. The company realizes that Colin is an extremely hard-working individual and notes that he can propel the company into high future growth.
Recently, Colin approached the human resources department outlining plans to join another company due to a higher salary. Realizing the risk of losing Colin, the human resources team, in consultation with the business owners of Company A, decides to offer Colin golden handcuffs in the form of:
- Employee stock options that vest over five years;
- Annual bonuses, which must be repaid if Colin leaves in the next three years;
- A summer vacation home if Colin stays with the organization for the next two years; and
- An additional two weeks of paid vacation.
With such attractive financial inducements and benefits, Colin decides to stay with Company A.
Golden Handcuffs on Bennett Goodman
An example of golden handcuffs in the news is Blackstone Group in early 2019 providing faster vesting of a $200 million share award to Mr. Goodman, in addition to other incentives, in a bid to prevent him from leaving the organization. Unfortunately, Blackstone’s move did not work, as Mr. Goodman announced his departure from the company in late 2019.
CFI offers the Capital Markets & Securities Analyst (CMSA)® certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below: