The full A-to-Z guide on a golden handshake

Eventually, there will come a time when you need to move on from your current job. Sometimes that happens with retirement and other times that happens with a restructuring of the company. Regardless of your circumstances, a golden handshake is a clause to consider adding to your employee contract when these situations present themselves. With this clause, you can receive compensation for your willingness to leave the company.

In this blog, we will cover:

• What is a golden handshake?

• 3 reasons employees opt for a golden handshake

• Disadvantages of a golden handshake

• 3 Golden handshake examples

What is a golden handshake?

A golden handshake is a clause that can be added to employment contracts to offer financial incentives for employees to leave a company. The employee will receive these incentives in response to their retirement, resignation, or termination from the company. 

There are a few scenarios where a golden handshake clause may be added to an employment contract. First  is when an employee is retiring. When an employee is nearing retirement, employers may offer a golden handshake to encourage that employee to retire earlier than they had planned.

Another scenario is when the company is restructuring.  Golden handshakes may be offered to you as a current employee if the company wants to lower its overhead and eliminate several employees at once. Finally, if your company feels you are not a good fit for your current role, you may receive a golden handshake to encourage you to leave willingly.

 3 Reasons employees opt for a golden handshake

Most of the reasons why golden handshakes are popular is because they offer a financial incentive to leave a company. This incentive can be attractive, especially if you are already planning to leave the company soon. Below are three reasons why employees tend to opt for a golden handshake: 

1. Early departure date. If you have plans for your time following your departure from the company, such as a new job, a golden handshake could help you move on faster.

2. Future job prospects. For those being offered a golden handshake due to job performance, accepting allows you to leave the position without being terminated.

3. Healthcare benefits. Some golden handshake clauses offer additional healthcare benefits, which can be attractive to employees who won’t have health insurance right away following their departure from the company.

What are the disadvantages of a golden handshake?

At first glance, golden handshakes may seem to be the best option, but that isn’t always the case. There are some disadvantages to consider. For example, this type of clause may leave you needing to pay more taxes and could have an impact on your retirement savings strategy.

If you are planning to continue working, the clause could make it more difficult to find work. In some cases, there is a stigma on these types of clauses that future employers could negatively perceive. You may also have to leave behind your professional network and start completely over with your connections.

The most important thing to do before opting for a golden handshake is to review the terms carefully and perform an in-depth financial and retirement analysis. You should also have both a legal and a financial planner professional review your situation before accepting.

3 Golden handshake examples

There are many ways a golden handshake may present itself. Plus, the exact details will vary from one company and one employee to the next. 

Here are three examples of what you may be presented with:

1. Lump sum

With this clause, you will receive a simple, one-time payment that is often based on how many years you’ve been with the company and your salary.

2. Severance package

Here, you will likely be given the lump sum plus additional benefits, such as health benefits or continued salary payments for a certain length of time.

3. Health benefits

This type of clause provides you with additional health benefits that can keep you covered until you have a new insurance policy. 

For help through all phases of your career journey, check out our Career Pathways tool on Career.io!

Key takeaways

1. A golden handshake is a clause added to an employment contract that offers financial incentives for an employee to leave a company.

2. Employees often opt for a golden handshake because they offer monetary payments or other financial perks.

3. Before accepting a golden handshake, you should consider the disadvantages of it and have your contract reviewed by a legal and financial professional.