Golden Handcuffs
Golden handcuffs are a collection of financial incentives that are intended to encourage employees to remain with a company for a stipulated period of time. Usually, they state that bonuses or other forms of compensation are only paid out if the employee stays for a defined period of time, or if they are paid out first, then they must be returned to the company if the employee leaves before a certain date. Other forms of golden handcuffs include contractual obligations that specify an action that an employee may or may not perform, such as a contract prohibiting a network television host from appearing on a competing channel. Charles has been working for company XYZ for five years. Golden handcuffs are a collection of financial incentives that are intended to encourage employees to remain with a company for a stipulated period of time. Golden handcuffs are financial incentives given to employees to discourage them from leaving a company. Golden handcuffs can be offered on a graduated basis when employees meet certain milestones, or they can be offered all at once with certain stipulations.
What Are Golden Handcuffs?
Golden handcuffs are a collection of financial incentives that are intended to encourage employees to remain with a company for a stipulated period of time. Golden handcuffs are offered by employers to existing key employees as a means of holding onto them as well as to increase employee retention rates. Golden handcuffs are common in industries where highly-compensated employees are likely to move from one company to another.
Understanding Golden Handcuffs
Employers invest significant resources in the hiring, training, and retaining of key employees. Golden handcuffs are intended to help employers hold onto employees that they've invested in but also to ensure that their best employees and top performers do not leave the firm. Sometimes golden handcuffs have a negative connotation as they are often associated with individuals staying at a job they are not happy in but not willing to leave because the financial loss would be significant.
Types of Golden Handcuffs
Golden handcuffs can be offered on a graduated basis when employees meet certain milestones, or they can be offered all at once with certain stipulations. Golden handcuffs can take many different forms. Some examples include stock options, supplemental executive retirement plans (SERPs), large bonuses, vacation homes, a company car, insurance policies, and so forth.
When these incentives are offered, they come with certain terms. Usually, they state that bonuses or other forms of compensation are only paid out if the employee stays for a defined period of time, or if they are paid out first, then they must be returned to the company if the employee leaves before a certain date.
Other forms of golden handcuffs include contractual obligations that specify an action that an employee may or may not perform, such as a contract prohibiting a network television host from appearing on a competing channel.
Example of Golden Handcuffs
Charles has been working for company XYZ for five years. In those five years, the company has spent a significant amount of time and money in training and developing Charle's skill set. Within that same time frame, Charles has demonstrated his exceptional talent and ability to perform well for the company. Not only has the cost in training Charles been returned to the company many times over due to his work ethic, but he will be a remarkable asset to the firm for many years to come.
Because Charles is such an exceptional employee, XYZ is worried they may lose him to a competitor that may offer more money or other incentives. To prevent this from happening, XYZ offers Charles a significant financial incentive through employee stock options. However, the stock options do not vest for five years, ensuring Charles will stay with the company for those five years and not miss out on a significant cash windfall.
Related terms:
Accounting
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more
Cash Bonus
A cash bonus is a lump sum of money typically awarded as in incentive for an employee's superior performance. read more
Deferred Compensation
Deferred compensation is when part of an employee's pay is held for disbursement at a later time, usually providing a tax deferred benefit to the employee. read more
Employee Stock Option (ESO Calculation)
An employee stock option (ESO) is a grant to an employee giving the right to buy a certain number of shares in the company's stock for a set price. read more
Key Employee
A key employee is a staffer who is a stakeholder with a decision-making role at a company. read more
Locked In
Investors are "locked in" when they are unable or unwilling to trade a security because of rules, regulations, or penalties preventing a transaction. read more
Supplemental Executive Retirement Plan (SERP)
A supplemental executive retirement plan is a form of deferred-compensation plan used to reward and retain key executives. read more
Signing Bonus
A signing bonus is a financial award offered by a company to a prospective hire to accept a position. read more
Stock Option
A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date. read more