Golden Handcuffs

What are Golden Handcuffs?

Golden handcuffs are financial incentives designed to keep talented employees from leaving a company.

How Do Golden Handcuffs Work?

Golden handcuffs may come in the form of lucrative commissions, generous bonuses, employee stock options, or other financial compensation; all provided to a talented employee as an incentive to keep them from moving out of the company.

For example, let's assume that John is the CFO of Company XYZ. John is very talented and capable, and Company XYZ knows that it would be very time-consuming and expensive to hire a new CFO if John were to leave. 

The labor market for CFOs is very tight at the moment, meaning that John has a lot of options at other companies and is probably getting some interest from other firms.

To keep John at Company XYZ, the board of directors decides to give him some golden handcuffs: a $50,000 stay bonus that he must return if he leaves the company in the next 18 months. John is actually free to leave at any time, but if he does, he won't get to keep the $50,000.

Why Do Golden Handcuffs Matter?

Golden handcuffs are a tactic to retain talent. They are more common in tight labor markets or for jobs requiring highly specialized skills. However, they are also very expensive, and although they can be less expensive than the cost to replace a particular employee, golden handcuffs often receive scrutiny from shareholders and directors.