Golden Handshake: A Boon or a Bane


Reshma Shrivastava
MBA Department
Disha Institute of Management & Technology

This is not a new management buzz but it is a term associated with a valuable commodity Gold so how golden is Golden Handshake we need to understand that and also its intricacies. We can Define Golden handshake is a large payment made by a company to a senior executive upon termination of employment before his/her contract ends It  is also associated with the term "Downsize" meaning - reduce the manpower. Now a days every company is   chanting only one 'mantra' - reform - restructure downsize " Don't recruit fresh employees in cases of retirement, throw the casual or contract workers our of job and even if that is not sufficient - lure the employees to leave the job give them some extra money in their hands This is Golden Handshake!

We can also define  golden handshake as a clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive loses their job through firing, restructuring or even scheduled retirement. This can be in the form of cash , equity and other benefits, and is often accompanied by an accelerated vesting of stock options.

Typically, "golden handshakes" are offered only to high-ranking executives by major corporations and may entail a value measured in millions of dollars. Golden handshakes are given to encounter  the risk inherent in taking the new job, since high-ranking executives have a high likelihood of being fired and since a company requiring an outsider to come in at such a high level may be in a precarious financial position. This business term dates from the mid-1900s and  is closely associated to  golden parachute- a generous severance agreement for an executive in the event of sudden dismissal owing to a merger or similar circumstance.

In the changed scenario of globalisation, cost cutting by public sector undertakings and Government departments has become the order of the day. The first victims of the economy measures are the employees, who are being made to pay with their jobs.

Be it any sector Railways, banks, textile industry, Aluminium plants, Steel Plants, you name any industry - Thousands of employees are going out of employment everyday. If we ask the  companies one question - who is going to buy the products, if everybody is thrown out of jobs a vast majority become burden of an employed few? We know nobody will answer it. The facts prove that there are no buyers even after unbelievable gifts are offered with some products. Go through newspaper ads on any day the industry itself is getting a handshake - not so golden. Let us see what happens to the employees who receives "Golden Hand Shake" .

1.Those employees either starts his own venture
2.The money gets spend on their children's education
3.The money also gets spend on their daughter's marriage
4. Some money or amount is used for saving
5.Most of the time it is found that the money results into expenditure affairs

There are very few people who gets another opportunity in other comparable jobs. Now the question is why will any company recruit such non trained employees and spend money on training them so.

Now if we see various issues how many people can get success in their own venture if they get started with business very few so result is loss. Only exception is perhaps if you start the business at very small level where you think there is less investment and income is guaranteed like having a general Store or you turn out to be vendors. Otherwise you are totally bankrupt.

The result is trauma all around. Spending days in utter frustration jobless seen as a spent force an outcast an object of pity. Those who kept some money in savings schemes discovered in 4/5 years time that the good amount of interest earned in yesteryears is nothing today due to inflation. If things go by the same rate what will be left over is only horror.

There is no government at the centre worth the name. Is there anybody to review it to retrace the steps? Most unlikely. So "downsizing" will continue. Market will further shrink. Industry will face a fresh bout of crisis. The employees will still feel deprived .

They would find themselves in a helpless position and their future appears bleak. Most of the times they cannot even decide what to do with the few lakhs of rupees they get in by way of compensation package. Many of them end up burning their fingers by starting business ventures without proper planning.

There are several instances of employees, who had taken VRS, being harassed by their kith and kin and family members for money; Some VRS people have utilized the money to discharge their duty by their family. However, many of them who have been used to a busy life do not find it easy to sit back and relax at home. There is also a chance of some of them going into depression due to constant nagging by their `near and dear' ones that they are sitting idle at a time when they should have been working. So Golden Handshake can never be a golden opportunity.

Reshma Shrivastava
MBA Department
Disha Institute of Management & Technology

Source: E-mail September 21, 2006


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