Golden Handcuffs

Liz Nderitu

January 09, 2023

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Imagine you're an executive at a top company, and you've just been offered an exciting new job opportunity. The salary is higher than you ever could have imagined, and the benefits are out of this world. The only catch is that you have to sign a contract agreeing to stay with the company for a certain number of years. If you leave before the contract is up, you'll have to pay a hefty penalty. This type of employment contract is known as "golden handcuffs," meant to incentivize the employee to stay with the company, rather than jump ship to a competitor.

The concept of golden handcuffs has its roots in the corporate world, where companies have long used various tactics to retain top talent. In the past, this might have included offering employees stock options or other forms of equity. Today, golden handcuffs are one of the most common ways that companies try to keep their employees around.

According to a survey conducted by the Society for Human Resource Management, about one-third of companies in the United States use some form of golden handcuffs to retain employees. This can include signing bonuses, retention bonuses, and other loyalty incentives.

Another study found that with employees who are offered golden handcuffs, the company’s retention rates jump from 52% to 75%. However, the study also found that employees who are given golden handcuffs are less likely to be satisfied with their job overall, compared to those who are not offered such incentives.

There are both advantages and disadvantages to golden handcuffs. On the plus side, they can be a great way for companies to ensure that they retain their top performers. They can also be a good way for employees to secure a higher salary or other perks that might not be available elsewhere. However, there are also some downsides.

For employees:

Limited job mobility. Golden handcuffs can limit an employee's ability to explore other job opportunities or move to a different company. This can make it difficult for employees to advance their careers or explore new opportunities, even if they are unhappy in their current job.

Loss of financial benefits. If an employee leaves their current job, they may lose access to the financial benefits that were tied to their continued employment. This can be a significant financial loss, especially if the employee has been with the company for a long time and has accumulated a large amount of stock options or other financial incentives.

Stress and burnout. The pressure to remain with a company can be stressful and lead to burnout. Employees may feel trapped in their current job and may struggle to find a work-life balance, leading to negative impacts on their mental and physical health.

Opportunity cost. By committing to a company for a certain period of time, an employee is giving up the opportunity to explore other job opportunities or start their own business. This can be a significant cost, especially for younger employees who may be just starting their careers.

For employers:

High employee turnover. Employees who are unhappy in their current job and feel trapped by golden handcuffs may be more likely to leave the company once those contracts or incentives expire. This can be costly and disruptive to the company.

Difficulty attracting new talent. If a company is known for using golden handcuffs to retain employees, it may be seen as less attractive to potential job candidates who value their freedom and mobility.

Decreased employee morale. Employees who feel trapped in their current job may be less motivated and engaged in their work, which can have a negative impact on the overall productivity and success of the company.

Legal risks. Employers who use golden handcuffs as a retention tool may face legal action if the terms of the incentives or benefits are not clearly defined or if they are seen as unfairly restricting employee mobility.
Reputational risks. If a company has a reputation for using golden handcuffs to retain employees, that may make it less attractive to both potential employees and customers.

Overall, golden handcuffs are a complex and controversial issue in the world of employment. While they can be a great way for companies to retain top talent, they can also be a source of frustration and resentment for employees.

Ultimately, the use of, and acceptance of, golden handcuffs is a personal decision for both employees and employers. It's important for both parties to carefully consider the pros and cons before entering into such an agreement.

Opinions expressed by the author are not necessarily those of WITI.

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