Golden handcuffsHuman Resource Management

Prepared By

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Golden handcuffs• Golden handcuffs, a phrase

first recorded in 1976, refers to financial allurements and benefits that have the objective to encourage highly compensated employees to remain within a company or organization instead of moving from company to company (or organization to organization).

Golden handcuffs• Golden handcuffs come in

different forms: Employee Stock Options , which endow only when the employee has been with the company or organization for different years and contractual agreements, that consist of bonuses or other forms of benefits which must be repaid to the company if the employee leaves before the date agreed on

Golden handcuffs

• Golden handcuffs are

frequently used for jobs that

require rare and specialized

skills or in a "tight labor

market", where jobs are

more common than workers.

Golden handcuffs

• In any case, golden

handcuffs are usually very

expensive for the company

or organization and

therefore they are not

appreciated by shareholders

and directors.

Impact

• When offered, golden

handcuffs are extremely

tempting as they usually are

of great value compared to

the employee's annual

salary.

Impact• The experience that follows an

agreement of this sort may be

draining and abhorrent, which is why

the contract must be thoroughly

analysed and thought about until an

intelligent conclusion or

compensation, that benefits both the

company and the employee, is

agreed upon.

Impact• Often employees feel the urge to

remain within the company

they've been working with, even

though it may not seem like the

smartest choice, objectively,

because of tradition,

relationships or a simple feeling

of belonging.

Impact

• These sort of agreements

might potentially impose

penalties if the employee

decides to leave the

company before the

contracted date, such as the

repayment of bonuses.

Impact• Often included in these contracts

are non-disclosure agreements

(NDAs), where the employee is

prohibited to communicate

sensitive corporate information,

and non-compete clauses, where

working for competitors is

forbidden for the leaving employee

Structure

• Golden handcuffs constitute

one of several ways to stop

companies' key employees

leaving, making it essentially

financially unprofitable for

them to walk away from

their employers.

Structure• Such deals are usually done with

stock options, phantom stock or

deferred payments. Phantom stock

usually gives the best results, as it

gives an employee of a company

using the technique a motive for

staying with the company and making

it grow, since the stock increases in

value alongside the company.

Structure• To create a contract that

benefits both the employee

and the company, a legal team

should be contacted in order

to discuss available options,

and key employees should be

distinguished from others

Structure• A funding mechanism should be

put in place by the company (if

privately held), where

obligations are present. Tax

repercussions should be

minimized for the money set

aside, usually using insurance as

main funding mechanism.

Structure

• If designed perfectly, the

corporation can manage to

receive all its money back

after paying the employee.