Definition of Golden Handcuffs
The Golden handcuffs are a pack of financial incentives offered by the employers to hold or retain the employee in the organization for a specified period. These techniques are availed by the employer to hold key employees in the organization. The tactic is majorly used in the industries where the movement of highly compensated employees is more common.
Explanation
The Golden cuffs financial incentives include hefty bonuses, stock options, company cars, etc. which are generally offered to the key employees in the company based on their exceptional performance or skills. As employers spend a lot in hiring, training, and retaining their employees, therefore they employ golden cuffs techniques to ensure their top performers hold on to them and do not leave before completing a certain period of time in the company.
Golden cuffs financial incentives come with a condition of spending a stipulated period of time in the company before the employees can become eligible to avail them. Therefore, these techniques encourage employees not to leave the organization before the stipulated period of time as resulting financial loss will be large to bear because they will have to return the benefits if they leave before a certain date.
Features of Golden Handcuffs
Golden cuffs can be identified with the following features:
- They are designed to provide hefty monetary benefits to encourage key employees not to leave the organization.
- For availing these benefits employees have to spend a stipulated period of time in the organization.
- In case employees leave before the specified date or period, they will have to return any benefit availed.
Example of Golden Handcuffs
For example, John is a key employee of XYZ company. The company spent a lot on John’s hiring, training, and development and thus does not want to lose him to competitors who may be ready to pay him more.
Therefore, the company applies preventive measures by offering him a golden cuff financial incentive, employee stock option. The condition attached was that the stock option does not vest for the next 6 years, and if John leaves before this stipulated period, he will miss on all the windfall gains. Thus, John will think twice before leaving if he chooses to take the offer of employee stock option because there is large financial gain at the stake.
Types of Golden Handcuffs
There are different types of Golden handcuffs based on different conditions. Some of them are discussed below:
- On reaching a Certain Milestone: This type of golden cuff financial incentives are provided to the employees once they reach a certain milestone, like reaching a level of performance, achieving target sales, customer satisfaction, completion of a certain project, etc.
- Completion of a Stipulated Period of Time: Some financial benefits are given to the employees on a condition that they will have to spend a certain period in the organization. If they leave before the specified date, they will have to return the benefits to the employer.
- Contractual Obligation: Some financial benefits employed through the golden handcuff technique come with a contractual obligation for the employee. For example, if the employee is associated with a certain project, or benefiting from certain incentives, they are asked toor refrained from performing certain obligations in return.
Impact of Golden Handcuffs
Golden handcuffs technique when applied seems like a lucrative deal to both the employer and the employees, but it has impacts that should be thoroughly considered before making the final decision. The Golden handcuff financial incentives are quite expensive and the company has to incur a lot of costs to apply them. It may seem a very good deal at the start but later on, it leads to a decrease in the morality of the employee; they start working for money and incentives only. Also, it sometimes leads to a situation where employees may feel like they are trapped as they cannot leave the organization due to huge financial loss.
Therefore, the Golden handcuff documents or contract should be analyzed considering all the aspects and a conclusion beneficial for both employers and employees should be reached upon. It can be a win-win situation for both the employer and the employee if drawn intelligently.
Advantages and disadvantages
Below are the advantages and disadvantages:
Advantages
Some of the advantages are given below:
- From the employees’ perspective, they get highly lucrative financial incentives, and also it makes them realize that they are important for the company.
- From the company’s perspective, it gets to keep its most talented employees from leaving them.
- Companies save lots of cost and risk involved in hiring new employees and training and developing their skills all over again.
Disadvantages
Some of the disadvantages are given below:
- Sometimes down the line employees start working for money because they do not like the job but are trapped in Golden cuff or shackles.
- There’s always a chance that a competitor may offer a higher package to the skilled employee if his true worth is not recognized in the current organization.
- The company will have to be prepared for the time when the stipulated timeframe or a certain condition of financial incentives is over, and sometimes it does happen for a lot of employees together in the organization, which will result in a lot of resignations.
Conclusion
It is sometimes said that companies use golden cuff techniques when they can’t motivate their employees by offering them the work type that they deserve. Companies should be careful while employing these techniques, though no doubt it will help in retaining the talent in the organization but at what cost and what will happen when the condition or stipulated time frame is over. It’s a good technique to reward a worthy employee, and if used wisely in conjunction with giving employees work satisfaction, great working environment, it can do wonders.
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This is a guide to Golden Handcuffs. Here we also discuss the definition and features of golden handcuffs along with advantages and disadvantages. You may also have a look at the following articles to learn more –
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