There are pros and cons to 'golden handcuffs' in the corporate jungle. The fierce competition for intellectual capital, especially in the financial services industry, can often force the hand of corporates who resort to extraordinary measures in attempts to keep key executive staff.

Many corporates take a ‘Golden Handcuff’ or ‘Happy Hello’ approach to retaining top execs. But, nothing is free and these payments are attached to complex and necessary retention strategies. `Golden Handcuffs’ could take the form of a significant share option package (often with distant vesting dates), inclusion in annual profit share payments, discretionary bonuses for specified tenure or, in some cases, significant international travel facilities for the whole family, to mention just a few – bottom line, whatever it takes to keep the valued executive from jumping ship.

‘Happy Hellos’, on the other hand, may take the form of financial compensation for monies forfeited, for example, to compensate an employee who walked away from a pending bonus to join the new firm. But, let’s be clear, ‘Happy Hellos’ are negotiation tools, not the firm’s way of saying what a nice guy you are. These payments come with caveats, such as should the employee leave within a certain period of time, the money must be refunded either in part or in full. 

In addition to ‘Golden Handcuffs’ or ‘Happy Hellos’, companies can also apply restraint of trade clauses. These are contracts which, once agreed and signed by the employee, restrain the employee from working in a similar role for a competitor, or sometimes even in the same industry. Restraint periods vary but the usual time frame is 1 year.  Sometimes a payment of some form accompanies the restraint contract, which is regarded as compensation for the employee withdrawing from the industry.

Another tactic to retain staff is to insert excessively long notice periods in employee contracts – sometimes up to six months. The logic behind this type of action is to put off future employers – after all, no one wants to wait six months for the new guy to start. However, the reality remains that notice periods can sometimes be bought out – which is another cost the future employer would have to bear.

Long notice periods are questionable in their value, as employees who have made the emotional separation and decided to leave are rarely productive or motivated. Enforced notice periods fuel discontent and spread poor morale amongst the team, and it is not uncommon to lose additional team members during this time. Not to mention leaving the company vulnerable to information theft by a disgruntled departing employee.

Overall the fight to retain intellectual capital is becoming increasingly complex and competitive. For the corporates out there, there is a fine line between being financially competitive to attract the best talent and overpaying for ‘assets’ in a way that does not always make business sense.

Madge Gibson is a senior associate at Jack Hammer Executive Headhunters (www.jhammer.co.za).

Published by: IOL - 2010