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What Is Golden Handcuffs
In business, golden handcuffs refer to a series of financial incentives companies give their employees designed to retain them for a certain period of time.
The idea is to retain the employee in such a way that he or she does not leave for the competitor.
Typically, golden handcuffs are given to key employees that are crucial to a company’s overall success, have unique skills, and are difficult to replace.
For example, a company’s Chief Technology Officer having deep knowledge of the company’s proprietary technology may be offered various financial incentives to remain with the company.
It’s common to see golden handcuffs in industries such as IT, software, law, medicine, finance, accounting, and similar industries.
The notion of “golden handcuffs” appears to have a negative connotation as it suggests that companies offer great financial incentives to key employees so they do not leave simply because the financial impact will be too significant.
Golden handcuffs can be any form of compensation or perks given to employees, such as stock options, family trips, tuition payments for higher education, large bonuses, company car, and so on.
Keep reading as I will further break down the meaning of golden handcuffs and tell you how they work.
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How Golden Handcuffs Work
Golden handcuffs represent financial incentives given to employees so they remain employed with the same company.
There are many types of financial incentives that can be given to employees, such as:
- Stock options
- Restricted stocks
- Retirement benefits
- Retirement contributions
- Great medical coverage
- Life insurance
- Important bonuses
- Company car
- Yearly vacation trips
- Tuition fee payment
- Special allowances
- Deferred compensation plans
- Supplemental executive retirement plans
Some incentives are given to key employees immediately while others are paid over time.
For example, a key employee can be given a large bonus along with lucrative stock options vesting over a period of five years.
The employee will have a strong incentive to stay employed with the company until the financial incentives become accessible.
Although golden handcuffs represent financial incentives, they do have a negative connotation.
The reason this is the case is that they suggest that an employee is financially handcuffed to the company against their will.
In other words, an unhappy employee may choose to remain with the company primarily because of the financial incentives rather than the desire to remain with the company.
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Types of Golden Handcuffs
There are different types of golden handcuffs that can be given to employees, such as incentives paid out when certain milestones are achieved, certain conditions are met, or over a period of time.
The first type of golden handcuffs is given to employees when certain milestones are achieved.
For example, a software developer is hired to help launch a new software product and he or she is entitled to a large bonus when the product is successfully launched.
In this case, the software developer will have the incentive to stay throughout the entire development process and launch to receive the large payout.
Another type of golden handcuff is when certain conditions are met.
For example, an employee may be given significant financial incentives to refrain from working for a specific company for the next several years.
Finally, the third type of golden handcuff is one that is given with the passing of time.
For example, an employee may be awarded stock options vesting over a five-year period.
In this case, every year, the employee will have 20% of the stock options vest where the entire stock option award will be vested after five years.
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Golden Handcuffs Example
Let’s look at an example of golden handcuffs to better illustrate the concept.
Imagine that a company hires one of the best software developers out there.
Since the developer is highly sought after, many companies are willing to pay this person very high compensation to attract her.
To ensure that she stays, the developer’s employer offers her a very high salary along with many financial incentives.
First, she is given great retirement benefits along with employer contributions.
Then, she is given high annual bonuses that complement her salary.
She is also given stock options that will vest over a period of five years.
Since the company is growing and has great potential, the stock options can be worth a significant amount of money over time.
Finally, she is given a company car so she can come to the office and her employer pays her gas.
With all of these incentives, it’s likely that she will stay employed with this company as the competitors may not be able to match all of the financial incentives she is given.
From the employee’s perspective, she has so many perks and advantages given to her that you can practically say that she is handcuffed to the company for many years to come.
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Golden Handcuffs vs Golden Parachute
What is the difference between golden handcuffs and golden parachutes?
Although golden handcuffs and golden parachutes refer to financial compensations given by companies to their employees, they are two very different things.
Golden handcuffs refer to all types of financial incentives given to employees so they are incentivized to stay with the same employer for a period of time.
Such incentives include things like restricted stocks, pension plans, 401(k) benefits, annual bonuses, deferred compensation, company cars, special allowances, and other perks and benefits.
On the other hand, the golden parachute refers to excessive financial compensation given to company executives when they leave a company.
Typically, golden parachutes are things like excessive cash payouts, very large bonus payments, highly lucrative stock options, or others.
The objective of golden parachutes is to disincentivize companies from firing their executive leaders or to make a potential acquisition more costly for the acquirer.
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Takeaways
So there you have it folks!
What does golden handcuffs mean?
In a nutshell, golden handcuffs are any type of financial incentive given by employers to their key employees to ensure they remain employed for a period of time.
The idea is to reduce the turnover of the company’s best talent.
Golden handcuffs can represent a wide variety of financial incentives such as supplemental executive retirement plans, company cars, very large bonuses, stock options, special allowances, and so on.
Golden handcuffs represent financial incentives that are allocated to an employee at the present moment but also tied to the future as well.
If the employee were to leave, they risk losing great compensation and the potential for future payouts.
Now that you know what golden handcuffs mean and how they work, good luck with your research!
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