Golden Handcuff Agreement

In today's economy, skilled talent is in such high demand that some individuals have virtually limitless job opportunities. Recruiting, training and retaining employees is an expensive endeavor at any level and even more so when the new hire possesses skills that place him in a high salary range. As a result, some companies resort to a golden handcuff agreement -- a beneficial and controversial arrangement.

A golden handcuff agreement is a contractual obligation between an organization and employee -- usually top-level executives or highly skilled individuals -- providing incentives that will encourage that individual to stay with the company. Such employees are in high demand and are likely to leave if they receive a better offer from another organization. The incentives are given on the condition that the employee must relinquish them if she decides to leave.

The types of incentives offered are entirely up to the organization. For example, a company may offer a large monetary bonus to an exceptionally skilled employee, which he must return if he decides to leave before a predetermined time. Incentives can also include stock options, lucrative pension plans and equity, to name a few. Other, more unorthodox, strategies include paying the employee's debts or financing a vehicle. This is all contingent on the employee staying with the company, either indefinitely or for a predetermined amount of time.

Golden handcuff agreements are advantageous for both the organization and the employee. Naturally, the employee benefits from an extremely lucrative compensation package that will make it unlikely for her to want to leave. For the company, hiring and replacing individuals, such as top executives or other top-trained talent, is expensive and time-consuming. Providing a golden handcuff agreement can be cheaper than constantly recruiting new candidates as their predecessors leave for better job offers.

Companies that offer golden handcuff agreements may draw scrutiny from and inspire mistrust in shareholders, mainly because these lucrative compensation packages are not contingent on performance. This is also a problem for the organization, because it does not motivate talented individuals to excel, missing out on an excellent opportunity to improve productivity, quality and competitiveness within the company. Organizations need to be careful about what they offer, as companies that offer lump sums of cash or shares upon hiring have no guarantee that the employee will not simply take the money or sell the shares and leave.