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Difference between Golden Handshake and Golden Parachute
Every company has the same goal: to find the most brilliant people possible and hold on to them. The same is valid, in particular, when it comes to high-risk executive employment, in which managers are charged with the task of making dangerous decisions in the best interest of the firm. In order to accomplish this result in the incredibly competitive employment markets, businesses provide significant incentives to their employees.
Golden handshake and the golden parachute are two of the most important offers that are available right now. Both of these benefits are quite valuable, so what sets one apart from the other? In this article, the similarities and distinctions between the two are discussed.
What is Golden Handshake?
The phrase "golden handshake" refers to an executive employment agreement that provides the executive with a sizeable compensation payout in the event that the executive loses their position as a result of being fired, being restructured, or even retiring on their own timetable. It could come in the form of cash, shares of ownership, or any other advantage.
In the middle of the 1960s, the word was first used in Britain. Fredrick Ellis, who worked as the city editor for the Daily Express, came up with the idea. After that, it eventually made its way into New Zealand in the 1990s, shortly after the contentious exits of some prominent state administrators.
Advantages of Golden Handshake
Working as a high-level executive in a corporation requires accepting certain degrees of personal danger. Golden handshakes of substantial value are frequently provided to high-level executives by businesses as a kind of cover compensation as well as an incentive.
A prospective worker is more likely to accept employment with a firm that provides additional benefits in addition to standard compensation. When competing for top executives at other organizations, businesses may offer enticing incentives to win them over.
It is beneficial to the employee since it ensures financial security even during periods when the person is not working. It frees the executive to look into other alternatives without preventing them from meeting their financial obligations.
The golden handshake consists of a generous retirement benefits package, which is provided to an employee regardless of whether or not they are required to retire earlier than planned.
Disadvantages of Golden Handshake
There is no provision in the contract requiring the executive to maintain their level of productivity during their tenure. Because of this, the firm can suffer financial damage.
The sum of money that is promised in a golden handshake is substantial, and because of this, a corporate leader may be tempted to participate in actions that are intentionally harmful to the business simply so they might be eligible for this offer.
In order for the corporation to reduce its overall operating costs, it could encourage its staff to retire earlier than planned.
Executives who have accepted the golden handshake are required to agree to the non-compete contract that is included in their compensation package. This clause states that top management who have accepted the golden handshake cannot start a competing business for a set period of time after their employment has been terminated.
What is Golden Parachute?
A golden parachute is a word used to refer to an agreement that is made between a corporation and an executive staff in which it is stated that the person would earn specific perks in the event that the employment is terminated. These benefits might consist of severance money, cash incentives, company stock, or any number of other possibilities.
Following are some of the conditions that must be met before the executive may be awarded the package −
Employment that was terminated as a result of a merger or an acquisition
Any other grounds for termination are also considered.
When companies combine or are acquired by another, a large number of their top executives are forced to resign and make way for the new management team. As a result, the executives are given severance payments in the form of a golden parachute in order to mitigate the risks associated with the transition and ensure a smooth process for the stakeholders.
The word was initially used in 1961 by creditors who were attempting to oust Howard Hughes from his position as the controlling shareholder of Trans World Airlines. Charles C. Tillinghast Jr. was given a contract by the creditors that included a clause stating that he would be paid even if he was fired from his employment.
In the 1980s, when there was a rise in the number of mergers and takeovers, the expression "golden parachute" began to gain popularity among the general public.
Advantages of Golden Parachute
It can make it simpler for a corporation to recruit skilled executives and to keep hold of them.
A golden parachute can reduce the likelihood of a company being acquired by another by making the acquisition more expensive.
Disadvantages of Golden Parachute
Even in the event that the executives are let go due to poor performance, the corporation will continue to offer excessive remuneration to the executives.
It is possible that its cost will not deter a takeover since, in comparison to the total cost of the takeover, it will likely be of small relevance.
Similarities − Golden Handshake and Golden Parachute
Both are presented to the senior executives of the organization.
Both can be received in the form of monetary compensation, equity, stock, or other advantages.
Both of these strategies may be utilized by a firm to get people to work with them.
Both do not depend on the individual's performance.
Differences between Golden Handshake and Golden Parachute
The following table highlights the major differences between Golden Handshake and Golden Parachute −
Characteristics | Golden Handshake | Golden Parachute |
|---|---|---|
Retirement
Benefits | The golden handshake package
includes retirement benefits. | The golden parachute does
not include retirement
benefits but all other benefits
similar to the golden
handshake. |
Package Worth | Golden handshake is heavier, more
appealing, and more rewarding for
their recipients as a direct result of
the incorporation of retirement
benefits into the package. | It is not as rewarding and
lucrative as the golden
handshake. |
Conclusion
You have gained an understanding of the distinction between the Golden Handshake and the Golden Parachute. The "golden handshake" is a benefits package that is provided to top executives in organizations in the event that they are let go from their positions, fired, or retire. It offers advantages when one retires. The golden parachute, on the other hand, is compensation that is offered to executives in firms as a result of the loss of a job and does not contain pensions and benefits. This package is given to executives when they lose their jobs.
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