What are Golden Handcuffs?
Golden Handcuffs refer to the deferred incentives offered to employees in an effort to encourage them to remain a part of the company over the long run.
Golden Handcuffs Definition in Business
The term “golden handcuffs” describe the incentives designed by a company to improve its retention of employees.
Employment contracts are usually structured with a multi-year incentive plan to improve the likelihood that the employees will continue to work for the company over the long-term.
Thus, the golden handcuffs aim to effectively align the interests of the employer and its employees, while improving morale and desire to exceed expectations on the job.
Most of the incentives meant to increase employee retention (and reduce employee attrition) tend to be monetary in nature.
From the perspective of the employee, the decision to leave their current role is weighed down by the fact that the benefits outlined in their employment agreement would be forfeited.
The long-term retention of top-performing employees and continuously training them is the goal of most companies, where talent is identified early on and those employees are developed over time until receiving promotions internally.
Generally, internal promotions tend to pan out better and be more cost-efficient than needing to recruit and hire employees for senior positions from external sources.
Golden Handcuffs Examples: Employee Retention Strategies
The most common examples of golden handcuffs are as follows.
- Performance-Based Bonus (Year-End)
- Employee Stock Options
- Restricted Stock Unit (RSU)
- Warrants
- Stock Based Compensation (SBC)
- Paid Time Off (PTO) and Vacation Days
- Flexible Work Schedule (e.g. Work-from-Home vs. In-Office)
- Stipends and Workplace Food
- Graduate School Tuition (e.g. MBA)
- Pension Plan (i.e. Retirement)
The benefits above are not received all at once.
Instead, the benefits either 1) incrementally increase with the passage of time or 2) cannot be reaped until a set number of years of employment have passed.
For instance, the performance-based bonus is paid on an annual basis and employee stock options cannot be exercised until the vesting period has passed.
