Golden handshake

A golden handshake is a

stock options. According to Investopedia, a golden handshake is similar to, but more generous than a golden parachute because it not only provides monetary compensation and/or stock options at the termination of employment, but also includes the same severance packages executives would get at retirement.^[2]

The term originated in Britain in the mid-1960s. It was coined by the city editor of the Daily Express, Frederick Ellis.[3] It later gained currency in New Zealand in the late 1990s over the controversial departures of various state sector executives.^[4]^[5]

"Golden handshakes" are typically offered only to high-ranking executives by major

examples needed

]

Perverse incentives

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Golden handshakes may create perverse incentives for top executives to facilitate the sale of the company they are managing by artificially reducing its stock price.

It is fairly easy for a top executive to reduce the price of their company's stock due to

window dress

their company's earnings forecasts).

A reduced share price makes a company an easier takeover target. When the company gets bought out (or taken private) - at a dramatically lower price - the

golden parachutes

Similar issues occur when a publicly held asset or non-profit organization undergoes privatization. Top executives often reap tremendous monetary benefits when a government owned or non-profit entity is sold to private hands. Just as in the example above, they can facilitate this process by making the entity appear to be in financial crisis – this reduces the sale price (to the profit of the purchaser), and makes non-profits and governments more likely to sell. Ironically, it can also contribute to a public perception that private entities are more efficiently run, thus again reinforcing the political will to sell off public assets. Again, due to

asymmetric information

, policy makers and the general public see a government owned firm that was a financial 'disaster' – miraculously turned around by the private sector (and typically resold) within a few years.

References

^ "Golden Handshake Definition".
^ What's the difference between a golden handshake and a golden parachute? investopedia.com
^ Cryer, Max (2010). Who Said That First. Exisle Publishing Limited. p. 113.
^ "PM criticises Lotto king's pay". The New Zealand Herald. 31 August 1999.
^ "Severance payout, trips probed". The New Zealand Herald. 17 June 1999.

External links

[1] - The Guinness World Records page on F. Ross Johnson, the record holder for largest Golden handshake (US$53,800,000 from RJR Nabisco) in February 1989

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Perverse incentives

See also

References

External links