Golden Handcuffs: Definition and Breaking Free

In the competitive business world, retaining top talent is crucial for the success and growth of any company. Companies often offer financial incentives to keep high-performing employees, such as bonuses, stock options, and other benefits that can tie them to the organization. This is known as Golden Handcuffs, a term that describes financial benefits companies use to keep their key employees from leaving.

[divi_switch_layout id=”1311″]


Golden Handcuffs is a legal agreement between an employer and employee that stipulates a set period during which the employee will receive financial benefits, often in the form of a bonus, in exchange for staying with the company. 

This employee retention tool is used to reduce employee turnover and ensure that the best employees remain with the company.

There are different types of Golden Handcuffs plans, including stock plans, supplemental executive retirement plans, loan repayment benefits, and vacation homes. 

These plans are designed to provide financial inducements to key employees to stay with the company for extended periods.

Types of Handcuffs

Stock Options

One of the most common forms of Golden Handcuffs is the employee stock option plan

This plan allows employees to buy company stock at a discounted price, usually over several years of service. 

The idea is that the employee will see the value of the stock increase over time, creating a financial benefit that will be meaningful to them.

Golden Handshake

Another form of Golden Handcuffs is the golden handshake, a type of financial benefit paid to employees when they leave the company. This benefit entices employees to stay with the company through transition, knowing they will receive a future compensation payout when they leave. The negative connotation of the golden handshake has led many companies to move away from this type of benefit.

Other Perks

In addition to financial benefits, companies may offer other incentives such as a company car, life insurance, or a free gym membership. These benefits create a good life for employees and support their physical and mental health, creating a culture that supports the highest sense of life evaluation.

Golden Handcuffs aims to reduce the risk of top employees leaving the company, taking their knowledge and skills with them. Gallup poll research shows that employee turnover can cost businesses up to 213% of the annual salary of the departing employee. This financial impact can be devastating, particularly for small business owners.

Golden Handcuffs can be particularly effective for senior management and high-paying jobs. 

These positions often require a significant investment of time and training, making the loss of a key employee a significant financial loss for the company. By offering Golden Handcuffs, companies can reduce the risk of losing their most valuable asset.

However, Golden Handcuffs plans can also create career uncertainty for employees. While they may be financially tied to their current employer, they may need more career opportunities to pursue their purposeful careers. Employees may feel trapped in their current job and need help exploring new career opportunities that would better fit their skills and goals.

Breaking free from Golden Handcuffs can be challenging, mainly if the employee has been with the company for many years. The vesting schedule for stock options and other benefits may require a certain amount of time before the employee can receive the full benefit. Additionally, non-disclosure agreements and trade secrets may limit the employee’s ability to move to a competitor.

There are ways to break free from Golden Handcuffs. The best way is to have a plan for a future exit. Employees can create a path for leaving their employer when the time is right. This may involve exploring new career opportunities, networking with other professionals, or acquiring new skills that make them marketable to potential employers.

Employees need to understand the terms of their Golden Handcuffs plans, including the time frame for vesting and the financial impact of leaving the company. This information can help them make informed decisions about their career and financial goals.

In some cases, breaking free from Golden Handcuffs may require legal assistance. An experienced employment lawyer can review the terms of the agreement and help the employee negotiate a release from the contract. The plan may involve paying the penalty or forfeiting some of the financial benefits associated with the plan.

Ultimately, the decision to break free from Golden Handcuffs is a personal one that requires careful consideration of the employee’s career goals and financial situation. While these plans can provide financial stability and security, they can also limit career opportunities and create a sense of dissatisfaction with work.

John Steinbeck once wrote, “The best-laid plans of mice and men often go awry.” This is true for Golden Handcuffs plans as well. While great compensation packages may provide a sense of security in the short term, employees should carefully consider the long-term impact on an employee’s career and life goals. 

In recent years, the tech industry in San Francisco has become known for its generous Golden Handcuffs plans, offering high compensation and a great culture to attract and retain top talent. However, some software engineers have begun questioning whether these plans are worth it, given the high cost of living and the pressure to work long hours.

The Peace Corps, on the other hand, offers a different type of Golden Handcuffs. Volunteers who complete their service receive a readjustment allowance, which employees can use to pay off loans or pursue further education. While the financial benefits may not be as significant as those offered by high-paying jobs, the meaningful work and social change volunteers experience can be a powerful motivator.

In the end, the key to breaking free from Golden Handcuffs is to find meaningful and fulfilling work. This may involve taking a lower-paying job that provides more opportunities for personal and professional growth or pursuing a career that aligns with one’s values and purpose.

Golden Handcuffs can be valuable tools for companies to retain top talent and reduce employee turnover rates. They can also create career uncertainty and limit employment opportunities to pursue their careers. By planning for future exit and finding meaningful work, employees can break free from the limitations of Golden Handcuffs and pursue a career that aligns with their values and purpose.

For more information on syndications similar to what we invest in, sign up for our newsletter and for the Supply Chain Investor Club.