Defining Golden Handshake

A forced exit leads to the most dreadful situation in an employee's professional life. The term 'Forced Exit' is known to the corporate by different names, such as Mass Exits, Lay-offs, Workforce Optimisation, Golden Handshake, etc. Although there are several fancy names, the intent is the same.

An Overview of Golden Handshake

Golden Handshake is a clause which involves Offering a severance package to key employees or corporate executives during the loss of jobs. The cause of losing jobs may be -

• Restructuring
• Firing
• Negligence
• retirement

Most commonly, top executives receive the Golden Handshakes while losing employment. The amount they receive with a severance package is negotiated before signing a contract. The company can make the Golden Handshake payment in different ways (such as equities, stock and cash). Some companies also provide attractive incentives like a vacation package and extra retirement benefits. But why do these companies make such an offer?

They do not like to lose high-value employees to their competitors. They want to draw the attention of talented employees with the special severance package. Standard employment contracts include details of severance packages provided to employees during the sudden loss of active jobs. In most cases, employees engaged in high-risk jobs get the Golden Handshake. However, the amount you receive as an employee varies with how long you have served the company.

How does a Golden Handshake Clause Work?

A business considers a Golden Handshake clause when a senior-level employee has reached retirement age. It may also happen that the business likes to reduce the cost of retaining employees. In these cases, the employer interacts with the concerned employees for the contract. Although employees have not made any mistakes, their services may get terminated.

Under the clause, the severance package minimises the potential financial risks caused by the abrupt service termination. Although the clause does not have a definite structure, it should cover some provisions -

• A fixed long-term contract that promises reimbursements in case of early termination
• Payout of a particular amount due to employer repudiation
• The option for resigning or claiming a sum because of a change in the company control

For instance, in 2018, Vodafone went ahead with extending golden handshakes or generous payouts to the strong performers who were not placed in the new entity with its merger with Idea Cellular.

Pros and Cons of Golden Handshake

Golden Handshake comes with a Range of advantages-

• The Golden Handshake or severance package is a type of protection against distress caused by an adverse situation
• It is also a guarantee that the employee will not charge the company for lay-off
• The employee should also promise that he will not work for the competitor's company after leaving the current firm
• Compensations, including cash, will secure the future of the employee
• Employees receiving the severance package feel rewarded for being dedicated to work

Some demerits of Golden Handshake -

• The amount offered to the employee is not based on his performance. The employment agreement does not cover the clause or stipulation that the top-level employee should work throughout the full employment tenure. So, even when employers fire employees for non-performance, they will still leverage benefits from the package
• The severance packages provided by some companies are highly lucrative. That is why some employees may intentionally perform adverse activities, which affect the business. Golden Handshakes can also lead to a conflict of interest
• Some companies deliberately announce early retirements of their staff to save the cost of operations
• If senior-level employees have obtained Golden Handshake, they need to consider a non-compete clause. According to this clause, they can work for a competitor's business for a predetermined tenure

Conclusion

To conclude, Golden Handshake is a clause in a normal employment agreement of a company. It is intended to hold senior-level employees with a severance package to reduce their financial risks. Although there are controversies about this clause, many big organisations have accepted it.