What is a Golden Handshake?

A golden handshake is a hefty severance package which is offered to senior executives and other high ranking employees. Often, the terms of a golden handshake are included in a hiring contract, and they are viewed as insurance against sudden or involuntary job termination. A golden handshake may also be offered to an employee to encourage him or her to retire; this is common in systems like schools, where long-term employees make more money, and it can be more cost efficient to hire entry level teachers.

The specifics of a golden handshake vary, depending on the position. Typically it includes a lump sum of money, and it may also include stock options or securities, continued insurance coverage, or payment into retirement accounts. A golden handshake also typically includes a few weeks of full pay, especially if the employment termination was sudden, allowing the former employee a chance to recover.

Corporate executives are especially subject to shifting allegiances and company restructuring. As a result, many demand golden handshake contracts to ensure that they will be compensated if their positions suddenly evaporate or radically change. Executives can also be made obsolete through rearrangement of departments, or they may be fired for poor performance or due to other issues with the company. Most executives are aware that their job security is very low, especially if they were brought into positions of high authority.

Golden handshakes can also be sweeteners for mandatory retirement. In industries where retiring long-term employees is a cost effective business decision, a golden handshake is almost used like a punishment. If the employee declines to retire, the offer will be retracted, and the employee may take a loss. Employees may also be asked to retire due to declining job performance or age, in which case a company may wish to provide a recognition of the employee's years of loyal service.

In an instance where a golden handshake is part of an employment contract, it pays to read the terms carefully, and to clarify questionable terms. Employees may want to ask whether golden handshakes will still be offered if companies liquidate or go into bankruptcy, for example. It is also important to ask about conditions in which the severance package will not be offered. If a golden handshake is being offered to you to convince you to retire, read the offer carefully and don't be afraid to bargain; you may be able to get a better deal by being forward about your desires.