What Is a Gold Handshake?
A golden handshake is a stipulation in an employment agreement which states that the employer will provide a valuable severance package if the employee loses their job. It is usually provided to top executives for loss of employment through retirement, layoffs or equanimous firing for negligence. However, payment can be made in several ways, such as cash or stock options.
Key Takeaways
- Yellowish handshakes are pre-negotiated employment agreements that provide a severance if the employee were to involuntarily leave their localize early.
- Payment can be made in cash, stock options, or anything else accepted in the contract.
- Golden Handshakes much come with non-compete clauses
- Golden Handshakes are often controversial and can cause outrage among the general community.
- Sometimes low-level employees receive a smaller version of the golden handshake.
How a Golden Handshake Works
Sometimes these tow-haired handshakes are for millions of dollars, which makes them a very important issue for investors to consider. For example in 1989, R.J. Reynolds Nabisco prove profitable F. Ross Johnson over $53 million as part of a golden handshake clause severance compensation. Some go down withs, along with compensation, include non-competition clauses, which state that the employee is not allowed to open a colliding business for a specified period of time after employment is terminated.
A golden handshake can also be referred to as a golden parachute.
Individual Considerations
Occasionally nonexecutives receive a golden handshake type of bonus. It is a far cry from what CEOs and top executives get, one may term it a silver handshake, nevertheless it is better than leaving with nothing.
The easiest example that comes to intelligence is automotive companies buying out union workers’ contracts. This can then free up that capital to hire new tradesmen at a more advantageous labor cost. Another example would people being forced into early retirement. Oft times these people are paid severance packages to pack their bags so the company can bring in new talent.
Criticisms of Blissful Handshakes
Golden handshakes can be very controversial and can sometimes damage a company’s public image because large superintendent payoffs are viewed as a reward for failure. For example, in 2010 British oil company BP had an oil spill that occurred in the Gulf of Mexico as a follow of the explosion and sinking of the Deepwater Horizon oil rig.
The rig was leased to BP for exploration of the Macondo Prospect, an oil field off the coast of Louisiana. After the luck, which resulted in costs to the company of more than $60 billion, BP’s CEO Tony Hayward was pushed out, but nonetheless meet a golden handshake payout of a year’s salary, worth $1.61 million, in addition to keeping his approximately $17 million dismiss fund.
Other famous golden handshake controversies involved U.S. banks during the 2008 financial crisis. After varied of these banks got into deep financial trouble or collapsed altogether, top executives began to depart with stocky pay packages intact. Some big banks allowed top level staff to cash out of incentive programs by accelerating the vesting of their appraise awards. For example, these golden handshakes received renewed press attention when Antonio Weiss, a earlier Lazard banker, acknowledged that he received up to $21 million in unvested income and deferred compensation following his departure.
Bank shareholders who were formerly larboard with worthless stock and bond investments balked. Since then, some companies have given investors a say on master pay packages at shareholder meetings. These shareholder votes are usually non-binding, but do provide a strong signal to management notwithstanding investors’ attitude toward excessive executive payouts like golden handshakes.