Golden Handshake definition
Golden handshakes are contractual clauses that guarantee an executive a substantial severance package should they lose their job due to restructuring or in some cases retirement. The package tends to include a combination of cash, equity and beneficial stock options.
Only senior leaders who bear a high degree of personal risk for a company’s performance are likely to receive a golden handshake. They’re used to attract high-calibre candidates who may be reluctant to move to another company.
Golden handshakes have attracted a fair amount of controversy for several reasons. Firstly they are rarely tied to performance and therefore provide no incentive to the executive to act in the organisation’s best interests. If they are attractive enough, they may also create perverse incentives for the executives to end their relationship with the company as quickly as possible, for example by facilitating a company sale or aggressive takeover.
Golden handshakes are similar togolden parachutes except they include the same severance package the executive would receive at retirement in addition to other benefits. Golden parachutes tend to apply to more controversial or chaotic situations. Golden handcuffs are another common form of executive incentive.
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