EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Golden Handcuffs

By Niti GuptaNiti Gupta

Home » Finance » Blog » Corporate Finance Basics » Golden Handcuffs

Golden Handcuffs

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.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

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:

Popular Course in this category
Sale
Business Valuation Training (16 Courses)16 Online Courses | 80+ Hours | Verifiable Certificate of Completion | Lifetime Access
4.5 (9,624 ratings)
Course Price

View Course

Related Courses
Equity Research Training (17 Courses)Project Finance Training (8 Courses with Case Studies)

Types of Golden Handcuffs

  • 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.

Recommend ed Articles

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 –

  1. Poison Pills
  2. Finance vs Lease
  3. Cash Ratio
  4. Earnout
  5. Financial Assets Types

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

40+ Projects

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

0 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Corporate Finance Basics
    • BPO vs KPO
    • C Corporation
    • Brick and Mortar
    • Business Entity Concept
    • Bounced Check
    • Capital Maintenance
    • Bridge Financing
    • Business Exit Strategy
    • Callable Bonds
    • Affiliated Companies
    • Certified Check
    • Chattel Mortgage
    • Contingent Beneficiary
    • Debt Collector
    • Closed Corporation
    • Cumulative Voting
    • Consumer Loan
    • Commercial Loans
    • Collateralization
    • Commercial Credit
    • Collection Agency
    • Classification of Financial Markets
    • Class Action Lawsuits
    • Prudence Concept in Accounting
    • Calmar Ratio
    • Asset Classes
    • Audit Evidence
    • Contingent Liability
    • Employee Stock
    • Financial Liabilities
    • Incurred Cost
    • Partial Income Statement
    • Deferred Tax Asset
    • Tax Fraud
    • Non-Operating Income
    • Variable Costing
    • Mixed Cost
    • Prime Cost
    • Regressive Tax Examples
    • Unqualified Opinion of Auditor
    • Bonds Payable
    • Class A Shares
    • Contingent Liability Example
    • Contingent Shares
    • Contributed Capital
    • Brownfield Investment
    • Internal Audit
    • Indirect Taxes
    • Fund Management
    • Fixed Cost
    • Debt Equity Swap
    • Cash Flow Hedge
    • Risk Shifting
    • High Yield Investments
    • General Obligation Bond
    • Forward Market
    • Box Spread
    • Fixed Income Trader
    • Trade Discount
    • Quick Assets
    • Notes Payable
    • Revenue Bonds
    • Euribor
    • Settlement Date
    • Short Covering
    • Short Selling
    • Dividend Examples
    • Time to Market
    • Junior Accountant
    • Commodity Derivatives
    • Flash Report
    • Idle Time
    • Leasehold Improvement
    • Product Portfolio
    • Risk Parity
    • Branch Accounting
    • Credit Enhancement
    • Basis Trading
    • At the Money
    • Accounts Receivable
    • Long Term Investments
    • Negative Goodwill
    • Recourse Factoring
    • Residual Value
    • Short Term Loan
    • Tax Exempt
    • Audit Report Format
    • Cash Investment
    • 457 Plan
    • Audit Procedure
    • Audit Materiality
    • Audit Committee
    • Asset Allocation
    • Non-Cash Expenses
    • Dividend Policy Types
    • Credit Terms
    • Dividend Payable
    • Profit Center
    • Absorption Costing
    • Final Dividend
    • Hybrid Securities
    • Other Current Assets
    • Simple Random Sample
    • Dependency Ratio
    • Effective Duration
    • Loan to Value Ratio
    • Inventory Turnover Ratio
    • Advantages of Ratio Analysis
    • Loss Ratio
    • Delaware Corporation
    • Articles of Incorporation
    • Negative Covenants
    • Statutory Liquidity Ratio
    • Leverage Ratio for Banks
    • Accrued Liabilities
    • Activity Ratio
    • Debt Service Coverage Ratio
    • Return on Investment Ratio
    • Turnover Ratios
    • Cash Conversion Cycle
    • Lumion vs V-Ray
    • Capital Intensive
    • Voided Check
    • Negotiable Instruments
    • Portfolio Optimization
    • 401k Plan
    • Non-Marketable Securities
    • Stock Certificate
    • Treasury Stock
    • Appropriate Retained Earnings
    • Stockholder
    • Share Vesting
    • Shares Issued
    • Preferred Shares
    • Share Buyback
    • Shareholder Types
    • Tax Loss Harvesting
    • Statutory Audit
    • Audit Risk
    • Fund of Funds
    • Accredited Investor
    • Cost Centre
    • Lessee
    • Golden Handcuffs
    • Ordinary Shares
    • Restricted Stock Units
    • Goodwill Valuation
    • Share Classes
    • Lessor
    • Preferred Dividends
    • LIFO Liquidation
    • Dilutive Securities
    • Restructuring Cost
    • Non-Cumulative Preference Shares
    • Pass Through Entity
    • Management Discussion and Analysis
    • Premium on Stock
    • Leveraged Loans
    • Dividend
    • Dividend Policy
    • Financial Reporting Objectives
    • Financial Reporting
    • Internal Controls
    • Capital Investment
    • Debt to Equity Ratio
    • Dividend Growth Rate
    • Market Capitalization
    • Deal Origination
    • Importance of Working Capital
    • SWOT Analysis
    • White Knight
    • Root Cause Analysis
    • Realized Gain
    • Return on Operating Assets
    • Offshore Investments
    • Transfer Price
    • Times Interest Earned Ratio
    • Debt Coverage Ratio
    • Dividend Discount Model
    • Combined Ratio
    • Merger Arbitrage
    • Gordon Growth Model
    • Advantages of Joint Venture
    • Interest Coverage Ratio
    • Reserve Requirements
    • Asset Turnover Ratio
    • Price to Rent Ratio
    • Ratio Analysis Types
    • Debt Ratio
    • Business Risk
    • Financial Leverage
    • Dividend Payout Ratio
    • Mistakes in DCF
    • Risk/Reward Ratio
    • Full Form of FIPB
    • Financial Risk
    • CAPE Ratio
    • Overcapitalization
    • Systematic Risk
    • Hedge Ratio
    • Full Form of NHB
    • Sensitivity Analysis
    • Current Ratio
    • Corporation Examples
    • Asset to Sales Ratio
    • Balance Sheet Ratios
    • List of Financial Ratios
    • Coverage Ratio
    • Forward PE Ratio
    • Interpretation of Debt to Equity Ratio
    • Capitalization Ratio
    • Importance of Ratio Analysis
    • Quick Ratio Interpretation
    • Corporate Finance Basics
    • PEG Ratio
    • Corporate Finance Interview Questions
    • Price to Earnings Ratio
    • Structured Note
    • Limitations of Ratio Analysis
    • NPV vs IRR
    • IRR vs ROI
    • Imputed Interest
    • Full Form of HR
    • Shareholders Agreement
    • Earnings Per Share
    • Corporate Finance Jobs
    • About Corporate Finance
    • Corporate Finance Theory & Practices
    • Career in Corporate Finance
    • Simple Interest Rate vs Compound Interest Rate
    • Stocks vs Shares
    • Bonds vs Debenture
    • Bull Market vs Bear Market
    • Mortgagee vs Mortgagor
    • Horizontal Integration vs Vertical Integration
    • Money Market vs Capital Market
    • Leveraged vs Unleveraged
    • Dividends vs Capital Gains
    • Present Value vs Net Present Value
    • Qualified vs Ordinary Dividends
    • ROE vs ROA
    • Bond vs Loan
    • Stock Dividend vs Stock Split
    • Audit vs Assurance
    • Coupon Rate vs Interest Rate
    • Growth Stock vs Value Stock
  • Accounting fundamentals (658+)
  • Asset Management Tutorial (198+)
  • Banking (44+)
  • Credit Research Fundamentals (6+)
  • Economics (44+)
  • Finance Formula (382+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (120+)
  • Investment Banking Careers (26+)
  • Trading for dummies (67+)
  • valuation basics (27+)
Finance Blog Courses
  • Online Business Valuation Training
  • Equity Research Certification
  • Project Finance Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

Special Offer - Online Business Valuation Training Learn More