how golden handshakes work
executive compensation often comes in a variety of forms which can be negotiated before the individual joins the company compensation for these employees often includes their salaries stock options cash and bonuses but in order to attract the right people companies may often include other benefits and incentives some of these other perks may include compensation that isn t directly related to their job performance such as the golden handshake a golden handshake is usually negotiated before the employee is onboarded it refers to a payment made to the employee if they lose their job because of firing layoff restructuring negligence and even retirement as noted above this type of benefit is commonly used as a tactic to hire specific individuals especially those who aren t already employed with the hiring company these golden handshakes can reach in the millions of dollars range which makes them a very important issue for investors to consider for example in 1989 r j reynolds nabisco paid f ross johnson over 52 million as part of a golden handshake clause 1a golden handshake can also be referred to as a golden parachute special considerationscertain non executives may also receive a golden handshake as a bonus in some cases it is usually drastically different than the compensation that chief executive officers ceos and top executives get so one might call it a silver handshake nevertheless it is better than leaving with nothing an example of this is automotive companies that buy out union workers contracts this can then free up that capital to hire new workers at a more advantageous labor cost another example is people who are forced into early retirement often times companies want to bring in new talent so these people are paid severance packages criticism of golden handshakesgolden handshakes can be very controversial for a number of reasons as noted earlier these benefits aren t necessarily related to the employee s job performance this means that the executive is still compensated even if they cannot deliver results even more baffling to critics is that some executives may still be paid a golden handshake if they re let go because of negligence this kind of benefit can damage a company s public image because large executive payoffs are viewed as a reward for failure and these individuals are often paid higher salaries than employees who aren t on the executive team examples of golden handshakesgolden handshakes often make headlines notably when executives don t meet targets or goals or even in cases where the company experiences a bad public relations pr incident the following are just two examples of famous golden handshakes oil company british petroleum bp had an oil spill in 2010 that occurred in the gulf of mexico as a result of an explosion of the deepwater horizon oil rig 2 the rig was leased to bp for exploration of the macondo prospect an oil field off the coast of louisiana after the accident which resulted in costs to the company of more than 69 billion bp s ceo tony hayward was pushed out 3 however he received a golden handshake payout of a year s salary worth 1 5 million in addition to keeping his approximately 17 million pension fund 4other famous golden handshake controversies occurred during the 2007 2008 financial crisis after many banks struggled financially many top executives were forced to depart but before they left their large pay packages were left intact some big banks allowed top level staff to cash out of incentive programs by accelerating the vesting of their stock awards bank shareholders who were left with worthless stock and bond investments were upset by these agreements since then some companies have given investors a say on executive pay packages at shareholder meetings these shareholder votes are usually non binding but they do provide a strong signal to management about investors attitude toward excessive executive payouts 