# Golden Handshake Explained: Definition, Benefits, and Notable Examples

## What Is a Golden Handshake?

A golden handshake is a pre-negotiated severance package that provides substantial payments to executives, often in cash or stock options. These agreements can be controversial because they can reward executives regardless of their performance. High-profile examples, such as the large payout to F. Ross Johnson in 1989, show how high these packages can be and highlight their impact on executive compensation.

### Key Takeaways

*   Golden handshakes provide substantial severance packages to top executives when they lose their jobs.  
    
*   These agreements are often pre-negotiated and include payment options like cash and stock options.  
    
*   Golden handshakes are controversial as they can reward executives even for poor performance or misconduct.  
    
*   Such severance packages are sometimes extended, in lesser form, to non-executive employees, known as silver handshakes.  
    
*   High-profile golden handshakes have sparked public outrage, especially when linked to company failures.

## Understanding the Mechanics of Golden Handshakes 

[Executive compensation](https://www.investopedia.com/articles/stocks/07/executive_compensation.asp) comes in a variety of forms which can be negotiated before an individual joins a company. Compensation often includes their salaries, stock options, cash, and bonuses.

To attract top candidates for executive roles, companies often offer extra benefits and incentives. Some of these additional perks may include compensation that isn't directly related to their job performance. One such perk is the golden handshake.

A golden handshake is usually negotiated before an employee is onboarded. It refers to a payment that will be made to the employee if they lose their job because of firing, layoff, [restructuring](https://www.investopedia.com/terms/r/restructuring.asp), negligence, and even [retirement](https://www.investopedia.com/terms/r/retirement.asp).

As noted above, this type of benefit is commonly used as a tactic to hire specific individuals—especially those who aren't already employed by the hiring company.

Golden handshakes can be worth millions, making them a crucial consideration for investors. For example in 1989, R.J. Reynolds Nabisco paid F. Ross Johnson an estimated $50 million as part of a golden handshake clause.

> **Fast Fact**
>
> A golden handshake can also be referred to as a golden parachute.

## Additional Insights on Golden Handshakes

Certain non-executives may also receive a golden handshake as a bonus in some cases. It is usually much less than the compensation that [chief executive officers (CEOs)](https://www.investopedia.com/terms/c/ceo.asp) and top executives might get. So one might call it a silver handshake. Nevertheless, it is better than leaving with nothing. 

An example of this is automotive companies that buy out [union](https://www.investopedia.com/articles/economics/09/unions-workers.asp) workers' contracts. This can then free up capital to hire new workers at a more advantageous labor cost.

Companies may offer severance packages to employees forced into early retirement to make way for new talent. These people are offered severance packages.

## Controversies Surrounding Golden Handshakes  

### Reward for Missing Goals

Golden handshakes can be very controversial for a number of reasons. As noted earlier, these benefits aren't necessarily related to the employee's job performance. This means that the executive receives added compensation even when they fail to deliver results.

### Reward for Bad Behavior

Even more baffling to critics (and the public-at-large) is that some executives may be paid a golden handshake even if they're let go because of negligence or some other wrongdoing.

Large payoffs can harm a company's image, as they may be seen as rewarding failure or misconduct.

Another criticism is that, usually, these employees already receive higher [salaries](https://www.investopedia.com/salaries-and-compensation-4689802) than employees who aren't part of the executive team.

## High-Profile Golden Handshake Cases

Golden handshakes often make headlines, notably when executives don't meet targets or goals, or even in cases where the company experiences a bad [public relations (PR)](https://www.investopedia.com/terms/p/public-relations-pr.asp) incident. The following are just two examples of famous golden handshakes.

### British Petroleum

Oil company British Petroleum ([BP](https://www.tradingview.com/symbols/NYSE-BP/)) had an [oil spill](https://www.investopedia.com/oil-4689767) in 2010 that occurred in the Gulf of Mexico as a result of an explosion of the Deepwater Horizon oil rig. The rig was leased to BP for exploration of the Macondo Prospect, an oil field off the coast of Louisiana.

After the accident, which resulted in costs to the company of more than $69 billion, BP's CEO Tony Hayward was pushed out. However, he received a golden handshake payout of a year's salary, worth $1.5 million, in addition to keeping his approximately $17 million pension fund.

### Merrill Lynch

In 2007, in the midst of the financial crisis of 2007-2008, the Chairman and CEO of Merrill Lynch Stanley O'Neal was forced out of the company, but he left with $161.5 million. At the same time, Merrill Lynch received an $8.4 million government fine tied to the subprime mortgage debacle and suffered a $2.3 billion quarterly loss.

Many insiders felt that O'Neal's pursuit of the subprime mortgage market and other high-risk plays contributed to Merrill Lynch's collapse as an independent financial firm (it was acquired by Bank of America and continued to operate). Congress concluded that O'Neal had some responsibility for causing the worst financial crisis since the Great Depression.

### Banks

Other infamous golden handshakes occurred during the [2007-2008 financial crisis](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp). After many banks struggled financially due to missteps of management, many top executives were forced to depart.

Despite problems, their [large pay packages](https://www.investopedia.com/investing/5-ceos-biggest-payouts-during-global-financial-crisis-bailouts/) remained intact. Some banks let executives cash out incentives by speeding up stock [vesting](https://www.investopedia.com/terms/v/vesting.asp).

Bank shareholders (who were left with worthless [stock and bond](https://www.investopedia.com/ask/answers/09/difference-between-bond-stock-market.asp) investments) were upset by these agreements. Since then, some companies have given investors a say on executive pay packages at shareholder meetings.

These [shareholder votes](https://www.investopedia.com/terms/v/votingright.asp) are usually non-binding. But they do send a strong signal to management about investors' attitude toward excessive executive payouts.

## What Does It Mean to Get a Golden Handshake?

It means that a top executive's employment contract includes a provision whereby the executive receives a severance package, usually of high value, if they lose their job.

## Are Golden Handshakes Still in Use?

Yes, they are still used by companies to attract top talent to critical executive positions.

## What's the Opposite of a Golden Handshake?

A golden hello could be considered the opposite, in the sense that it's a financial inducement (such as a signing bonus) that is presented at the beginning of employment rather than at the end.

## The Bottom Line

Golden handshakes are contractual clauses that promise large severance packages if an executive is fired or retires. They are controversial because they can reward executives even for poor performance or misconduct. High-profile cases like those at British Petroleum and Merrill Lynch have drawn public and investor criticism. These packages can have major financial implications, affect shareholder relations, and tarnish a company’s public image. While intended to attract top talent, golden handshakes can carry significant costs and risks for businesses.

> **Article Sources**
>
> 1.  The New York Times. "[F. Ross Johnson, Symbol of ’80s Corporate Excess, Dies at 85](https://www.nytimes.com/2016/12/31/business/f-ross-johnson-dead-rjr-nabisco.html)."
>     
> 2.  Yermack, David. "[Golden Handshakes: Rewards for CEOs Who Leave](https://pages.stern.nyu.edu/~rengle/YermackF2004.pdf)," _Stern School of Business_, NYU Working Paper No. FIN-04-020, August 2004, pp. 1.
>     
> 3.  Offshore Technology. "[Macondo Prospect, Gulf of Mexico](https://www.offshore-technology.com/projects/macondoprospect/)."
>     
> 4.  BP. "[Gulf Commitment](https://www.bp.com/en_us/united-states/home/community/gulf-commitment.html)."
>     
> 5.  NPR. "[Hayward's 'Golden Parachute' Is Relatively Modest](https://www.npr.org/templates/story/story.php?storyId=128804286)."
>     
> 6.  Time. "[Biggest Golden Parachutes](https://content.time.com/time/specials/packages/article/0,28804,1848501_1848500_1848459,00.html)."
>     
> 7.  The Wall Street Journal. "[Stan O'Neal Ended the ‘Mother Merrill’ Culture and Hasn’t Run a Company Since](https://www.wsj.com/articles/stan-o-neal-ended-the-mother-merrill-culture-and-hasnt-run-a-company-since-1531573201)."
>     
> 8.  Harvard Law School Forum on Corporate Governance. "[CEO Pay Mix Changes Following Say on Pay Failures](https://corpgov.law.harvard.edu/2019/02/23/ceo-pay-mix-changes-following-say-on-pay-failures/)."
>     
> 9.  Harvard Law School Forum on Corporate Governance. "[Executive Compensation: The Role of Public Company Shareholders](https://corpgov.law.harvard.edu/2019/07/31/executive-compensation-the-role-of-public-company-shareholders/)."