A Golden Handcuff employee compensation plan is used to recruit, retain and reward employees in any business.
A Golden Handcuff employee compensation plan is an additional compensation benefit that require an employee to stay employed with a company for a specified period of time in order to receive the additional payment. A golden handcuff compensation plan is a win for a company because it provides incentive for a productive employee to stay with the organization and it is a win for the employee because they golden handcuff plan has the potential to provide significant retirement and insurance benefits they otherwise may not have received.
Here are 5 ways a company can implement a golden handcuff compensation benefits package for employees in order to recruit, retain and reward them for a job well done.
1) Retirement plan vesting – Traditional direct contribution retirement plans like a 401(k) promises the employee a “match” to their funds for making a deposit for their future. By creating a vesting schedule to the employer’s matching fund, the employer creates a golden handcuff on the employee because if the employee were to leave before they are 100% vested, then they have the potential to lose some or all of their matching funds.
2) Profit sharing – People like to know that they have an ownership stake in something that they are working at building. Business owners who implement a profit sharing plan allow their employees to share in the profits that they helped to create. Generally speaking, profit sharing plans are a qualified retirement plan that grants a portion of the profits to each employee based on length of employment and salary. To provide incentive for the employee to stay and continue to help create more profits for a company, a vesting schedule can be placed on the employees share of the profits creating a golden handcuff on the employee with the company.
3) Stock options – Another way giving an ownership stake to an employee is by having the company grant the employee stock options. Stock options are a contract that grants the owner the right to buy a stock of a company at a preset price sometime in the future. If the price of the stock is higher in the future than the stock options purchase price, the owner has the potential to make an immediate profit.
By putting a vesting schedule on any stock options a company grants to an employee, the company can place a golden handcuff on that employee.
4) ESOP – An Employee Stock Ownership Plan (ESOP) is a form of qualified retirement plan that allows a business owner to grant ownership of their company to his or her employees. As is the case with stock options and profit sharing, an ESOP can also have a vesting schedule creating a golden handcuff on the employee keeping them working and being productive.
5) Non-Qualified Retirement Plans – Sometimes a business wants to give more benefits to certain employees and not give any benefits to others. Non-Qualified Retirement Plans that are void of the ERISA scrutiny Qualified Retirement plans like a 401(k) or profit sharing plan carries. NQ retirement plans such as Supplemental Executive Retirement Plans (SERPs) can be put in place to provide retirement income and insurance benefits to a select group of employees. A Golden Handcuff employee compensation plan can be added to these plans that stipulates the employee must stay working for a predetermined amount of time in order to receive those retirement benefits or else they will be forfeited back to the company.
Recruiting the best people for a business and then having a system in place that helps to retain them and reward them for their performance and loyalty can make a gigantic difference in running a successful company vs. the feeling of always struggling. Key people that help drive productivity want to feel appreciated and are being sought by a businesses competitors.
By having a golden handcuff employee compensation plan in place, a business can protect itself from losing a vital piece of their organization so it can continue to move forward.