Background
The term “golden handshake” refers to a financial arrangement wherein a departing executive or senior employee receives a generous severance package. This might include cash bonuses, stock options, and other benefits.
Historical Context
Golden handshakes became more prominent in the latter half of the 20th century, particularly with the rise of large multinational corporations. They were originally introduced to attract and retain top executives by guaranteeing a secure and lucrative exit strategy.
Definitions and Concepts
A golden handshake is essentially a form of severance pay, but significantly more substantial. It is typically agreed upon when the executive signs their employment contract, and it’s often structured in such a way to ensure that both parties – the executive and the employer – are protected and incentivized during times of change, whether due to retirement, resignation, or termination.
Major Analytical Frameworks
Classical Economics
In classical economics, a golden handshake would likely be viewed as a breach of competitive market practices, wherein compensatory practices should be directly tied to productivity and economic outputs of the individual.
Neoclassical Economics
Neoclassical economists might analyze the golden handshake in terms of supply and demand for exceptional executive talent. The large severance package ensures top talent is secured by signaling a commitment to their financial security.
Keynesian Economics
Keynesian analysis might focus on the macroeconomic implications of golden handshakes, considering how substantial payouts could affect aggregate demand and overall firm liquidity.
Marxian Economics
From a Marxian perspective, golden handshakes could be critiqued as a mechanism that consolidates executive power and perpetuates income inequality within the capitalist system. It could be viewed as part of the strategies the ruling class uses to maintain control and loyalty amongst its key players.
Institutional Economics
Institutional economists might analyze golden handshakes in the context of corporate governance and the roles institutions play in structuring economic behavior. They would be interested in the rules, laws, and norms that legitimize and regulate such severance packages.
Behavioral Economics
Behavioral economics could provide insights into the psychological and heuristic underpinnings of why executives negotiate golden handshakes, as well as why boards approve them. It could examine aspects like risk aversion and future planning biases.
Post-Keynesian Economics
Post-Keynesian analysis might critique golden handshakes through the lens of financial stability, arguing that guaranteeing large payouts can affect a company’s balance sheet and long-term financial stability.
Austrian Economics
From the Austrian School perspective, golden handshakes would be viewed as products of individual entrepreneurial contracts, stressing the role of personal decision-making within the marketplace.
Development Economics
In development economics, golden handshakes may be analyzed in the context of multinational corporations and their roles in both advanced and emerging markets, considering how they influence labor markets and corporate cultures.
Monetarism
Monetarist analysis would likely focus on how golden handshakes might affect a firm’s monetary policy, particularly during times of economic contraction or expansion.
Comparative Analysis
Golden handshakes can be compared to other exit compensations like golden parachutes and severance pays. Understanding how these incentive mechanisms differ globally, particularly in the context of corporate governance laws, provides insights into their effectiveness and economic impact.
Case Studies
- ABC Corp: Known for unprecedented large golden handshakes to multiple executives upon restructuring.
- XYZ Ltd: A case where excessive golden handshakes led to shareholder backlash and regulatory scrutiny.
Suggested Books for Further Studies
- “Corporate Governance: Principles, Policies and Practices” by Bob Tricker
- “Executive Compensation: A Complete Guide for Private, Public, and Not-For-Profit Organizations” by Michael Dennis Graham
Related Terms with Definitions
- Golden Parachute: A large financial benefit given to executives if the company is taken over or merges and they lose their job as a result.
- Severance Pay: Compensation paid to an employee who is dismissed from employment, usually for reasons beyond their control.
