Table of Contents
Table of Contents
Easier full-service payroll for small businesses
What Are Golden Handcuffs?
Golden handcuffs refer to incentives provided by your organization to your employees, primarily financial, to encourage retention, particularly for a certain period of time. Typically, these types of incentives are offered to highly compensated employees (HCEs), high-performing employees, and employees with specialized skills.
There are a number of financial incentives that organizations can provide as a way to retain its top employees. The most common incentives are stock options, vacation homes, bonuses, use of a company car, and a pension plan.
Should Your Organization Try To Create a Golden Handcuffs Compensation Environment for Employees?
Whether your organization should create a golden handcuff compensation strategy depends on the outcomes you are trying to achieve. For example, are you experiencing a high turnover rate of your top employees that you would like to retain? Is your organization having difficulties attracting top talent?
In industries and organizations that rely heavily on technology, the demand for talent has been high and quite challenging. Employers are scrambling to find the best talent and retain talented employees. If your organization is faced with this challenge, you may want to consider creating a golden handcuff strategy.
For example, consider the following scenario. Jane Doe is an employee of yours. Your cost-to-hire, (a metric used to measure the total amount of money spent for recruitment, training, etc. to hire an employee) was a substantial amount. In addition, Jane’s hard and soft skills are hard to find. In this case, a golden handcuff may be beneficial to your organization, providing a financial incentive such as a lucrative stock option that does not vest for a certain period. Should Jane decide to leave prior to being vested, the stock option is not provided.
The Pros of Golden Handcuffs
Prior to implementing a golden handcuff strategy, consider the pros and cons of doing so.
- Reduces Turnover. The cost of employee turnover is expensive. Turnover impacts an organization’s operational costs, revenue, productivity, culture, and more. Golden handcuffs can be instrumental in an organization’s retention strategy. For example, by providing equity to your key employees, it induces them to stay and contribute to the company’s long-term growth. This will, in turn, reduce your turnover rate, increasing your organization’s retention rate.
- Organization size. In addition, golden handcuffs are not limited to large organizations. Golden handcuff agreements can be seen in organizations of any size. For example, smaller organizations can provide flexible working conditions and bonuses as a form of a golden handcuff.
- Flexibility. Golden handcuff agreements provide flexibility. Organizations can be as flexible as they need with their agreements, from providing stock options and non-qualified stock agreements (that provide the option to buy shares at a grant price), to vacation homes, company vehicles, and more. Organization’s also can set the length (years) of the agreement. For example, contingent upon many factors such as the organization’s goals and technology, organizations can set its length of service from six months to 10+ years, outlining the terms of an agreement in what the organization deems advantageous.
The Cons of Golden Handcuffs
Though designed to attract and retain top talent for a certain period of time, golden handcuffs do have their cons.
- Decreased employee satisfaction. People work to be paid, and though being paid a higher rate coupled with perks such as a golden handcuff is great, it does not equate to job fulfillment or happiness. Decreased job satisfaction can lead to employee disengagement, low team morale, and high absenteeism. A Gallup survey found that disengaged employees cost organizations 34% or $3,400 for every $10,000 made of an employee who is disengaged.
- Other offers. The talent market is hot right now and though your organization has offered a golden handcuff and the employee has accepted, keep in mind that other organizations can and do offer better packages. Don’t assume that a golden handcuff will automatically keep your employee at your company.
Ways To Create Golden Handcuffs
If your organization is experiencing challenges with talent, such as obtaining and retaining, a golden handcuff may be beneficial. Let’s take a closer look at how to create a golden handcuffs strategy
Step 1: Determine Your Goals and Outcomes
Consider your organization’s goals and outcomes, how will a golden handcuff help your organization achieve success? Your organization’s goals can be team-based, personal, or corporate-driven. Either way, there should be a timeline in which you would like to meet your organizational goals.
Consider the who, what, when, and why? Be sure that your goals are relevant to both your team’s and/or individual roles that align with your organization’s overall goal. SMART goals are a great way to create a clear and mutual understanding of your organization’s goals and how teams and individuals play into them. A golden handcuff can help reduce the risk of top employees leaving your organization, prior to meeting the goals and outcomes.
Ultimately your goals should be designed to define your organization’s purpose, assist in your growth and achieve your financial goals.
Step 2: Build Performance Measures
Begin building performance measures based on the goals and objectives you have identified in step one. It is important to build performance measures because these will determine how the employee will do their job.
Keep in mind that performance is contingent upon a number of factors. You want to ensure that your performance measures align with your organization’s goals and objectives. When creating, be sure that you are clear of what is expected, including the target date, productivity metric, innovation, and employee performance measures.
For example, for the purpose of the golden handcuff, you may want to measure how well the employee achieves their stated goals. To do so, you would evaluate how the employee meets their targets, results, and overall financial returns.
Step 3: Determine the Time Frame
The goals and objectives you have identified in step one determine the length of time in which you anticipate meeting those goals. For example, if your goal is to improve the sales performance of your organization, determine when you will start and how long the project will last, based on the current sales gap forecasting the estimated length of time to complete/meet your identified goals. In addition, you will want to be sure to include a touchpoint schedule you can use to measure and monitor the performance of the project throughout its entirety.
Step 4: Think Through ‘What If’ Scenarios
Think about your ‘what if’ scenarios. For example, what happens if the organization is acquired by another? What if there’s a recession or another pandemic? Specify payouts and write up an exact plan for what will happen if these scenarios take place.
Easier full-service payroll for small businesses
Reduce payroll errors, stay compliant with complicated laws, and meet deadlines with Eddy Payroll.
Questions You’ve Asked Us About Golden Handcuffs
Wendy is an HR professional with over 10 years of HR experience in education and health care, both in the private and non-profit sector. She is the owner of KHRServices, a full service HR management agency. She is also SHRM and HRCI certified, serves as a HRCI Ambassador, and voted 2021 Most Inclusive HR Influencer.
Want to contribute to our HR Encyclopedia?
Other Related Terms
Posts You Might Like
When it comes to choosing a payroll provider, there is so much more than just running payroll. Unfortunately, many business owners rush to choose the provider without considering many alternatives. Learn more about the four reasons you should consider making a change.