Golden Handshake
What Is a Golden Handshake?
A golden handshake is an expectation in an employment agreement which states that the employer will give a critical severance package in the event that the employee loses their job. It is typically given to top executives if they lose employment due to retirement, cutbacks, or for negligence. Be that as it may, payment can be made in more than one way, like cash or stock options.
How a Golden Handshake Works
Sometimes these golden handshakes are for a large number of dollars, which makes them a vital issue for investors to consider. For instance in 1989, R.J. Reynolds Nabisco paid F. Ross Johnson more than $52 million as part of a golden handshake clause. A few contracts, alongside compensation, incorporate non-rivalry clauses, which state that the employee isn't permitted to open a contending business for a predetermined period of time after they are fired.
A golden handshake can likewise be alluded to as a golden parachute.
Special Considerations
Periodically non-executives receive a golden handshake as a bonus. It is generally drastically not quite the same as the compensation that CEOs and top executives get, so one could call it a "silver handshake." Nevertheless, it is better than leaving with nothing.
An illustration of this is automotive companies that buy out union workers' contracts. This can then free up that capital to hire new workers at a more profitable labor cost. One more model is individuals who are forced into exiting the workforce. As a rule companies need to get new ability so these individuals are paid severance packages.
Analysis of Golden Handshakes
Golden handshakes can be exceptionally dubious. They can damage a company's public picture since large executive payoffs are seen as a reward for disappointment. For instance, in 2010 British the oil company BP had an oil spill that happened in the Gulf of Mexico because of the blast of the Deepwater Horizon oil rig.
The rig was leased to BP for exploration of the Macondo Prospect, an oil field off the shoreline of Louisiana. After the accident, which brought about costs to the company of more than $69 billion, BP's CEO Tony Hayward was pushed out. Be that as it may, he received a golden handshake payout of a year's salary, worth $1.5 million, as well as keeping his roughly $17 million pension fund.
Other renowned golden handshake debates happened during the 2008 financial crisis. After a significant number of these banks caused problems, top executives were forced to depart yet left with large pay packages flawless. A few big banks permitted high level staff to cash out of incentive programs by speeding up the vesting of their stock awards. For instance, Antonio Weiss, a former Lazard banker, recognized that he received up to $21 million in unvested income and deferred compensation following his departure.
Bank shareholders who were left with worthless stock and bond investments were annoyed about these agreements. From that point forward, a few companies have given investors a say on executive pay packages at shareholder gatherings. These shareholder votes are typically non-restricting, however give a strong signal to management about investors' mentality toward extreme executive payouts.
Features
- Sometimes low-level employees receive a more modest variant of the golden handshake.
- Golden handshakes are pre-arranged employment agreements that give a severance on the off chance that the employee were to early automatically leave their position.
- Payment can be made in cash, stock options, or whatever else accepted in the contract.
- Golden Handshakes frequently accompany non-compete clauses.
- Golden Handshakes are frequently questionable and can cause upset in the overall population.
