A “Golden Handshake” is a clause in an employment contract where an employer agrees to provide a significant severance package or payout to an employee, typically an executive, if the employee is terminated, retires, or in some cases, if the company is acquired or undergoes a merger.
The package can include cash, stock options, a pension, retirement benefits, or other perks, and it’s usually substantial – hence the term “golden.” Golden Handshakes are commonly used to incentivize high-level executives to leave a company, particularly in instances of poor performance, restructuring, or strategic changes that require new leadership.
While Golden Handshakes can help companies part ways with executives in a mutually agreeable manner, they’ve also been criticized for being overly generous or rewarding failure, particularly when they’re given to executives of companies that are underperforming or laying off other employees.
It’s also worth noting that such arrangements should be carefully constructed to ensure they comply with all relevant laws and regulations, and they’re typically subject to review and approval by the company’s board of directors or compensation committee.
Example of a Golden Handshake
Imagine there’s a large corporation, “BlueChip Corp,” and its current CEO, “John,” has been underperforming. The board of directors decides that a change in leadership is necessary for the company’s future success. However, John has a robust employment contract and is resistant to the idea of stepping down.
As part of his employment agreement, there is a “Golden Handshake” clause. This clause stipulates that if John leaves his position for any reason, he will receive a severance package which includes 2 years of his current salary, continued health benefits for the same period, and accelerated vesting of his stock options.
Given this clause, the board offers John the Golden Handshake. He accepts the offer, deciding that the severance package is beneficial for him. He resigns from his CEO position, and BlueChip Corp can now look for a new CEO who they feel will better lead the company in the direction they want.
This is a simplified example, and real-world Golden Handshakes can be much more complex. They can involve negotiations, may be subject to certain conditions or performance metrics, and must be thoroughly reviewed by legal counsel to ensure they comply with all applicable laws and regulations.