Do golden handcuffs really work?

Golden handcuffs are a familiar concept for HR professionals across Canada. These financial incentives are designed to keep top employees from leaving the company. But while golden handcuffs can be effective, they come with their own set of challenges and risks. 

This article explores how golden handcuffs work, the types available, their pros and cons, and best practices for implementation. We’ll also look at real-world issues that Canadian HR leaders should consider before offering these incentives. 

How golden handcuffs work 

Golden handcuffs are more than just a catchy phrase. They’re a strategic tool used by organizations to encourage employees to stay for the long term. These incentives are often tied to a set period – if the employee leaves before that time, they lose the benefit. 

The most common golden handcuffs include: 

• employee stock options with vesting schedules 
• deferred bonuses or bonuses that must be repaid if the employee leaves early 
• supplemental executive retirement plans (SERPs) 
• extra paid vacation, company cars, or unique perks 

The goal is simple: make it financially rewarding for employees to stay, especially those whose skills are in high demand. Golden handcuffs are often reserved for senior leaders, high performers, or employees with specialized knowledge.

Vesting and repayment 

Most golden handcuffs come with a vesting period. Employees must remain with the company for a certain number of years before they can access the full benefit. If they leave early, they may lose out on stock options, bonuses, or other rewards. In some cases, employees must repay bonuses if they leave before the agreed time. 

This approach can create a strong incentive to stay. But it can also lead to feelings of being “trapped,” especially if the employee is no longer happy in their role. 

Who benefits most? 

Golden handcuffs are most common in industries where skilled workers are hard to find. Technology, finance, and consulting firms often use these incentives to keep their best people. Companies want to avoid losing employees to competitors, especially after investing in training and development. 

Types of golden handcuffs 

There’s no one-size-fits-all approach to golden handcuffs. Organizations can choose from a range of incentives, depending on their goals and the needs of their employees.  

Here are some examples: 

Employee stock options 

Employee stock options are a popular form of golden handcuffs. They give employees the right to buy company shares at a set price. These options usually vest over several years. If the employee leaves before the options vest, they lose the benefit. 

Stock options can be especially attractive in fast-growing companies. Employees who stay long enough may see significant financial gains if the company’s share price rises. But if the company’s performance falters, the value of the options may be lower than expected. 

Supplemental executive retirement plans (SERPs) 

These plans offer extra retirement income to top employees. The employee must stay with the company for a set period to receive the full benefit. SERPs are often used for senior leaders or employees with unique skills. 

If you plan to implement SERPs as part of your organization’s compensation strategy, it’s best to consult a corporate tax lawyer for guidance.  

Deferred bonuses 

Deferred bonuses are paid out over several years, not all at once. If the employee leaves early, they may have to repay some or all of the bonus. This approach ties rewards to long-term commitment and performance. 

Milestone rewards 

Some organizations offer special rewards for reaching certain milestones, such as five or ten years of service. These can include cash bonuses, extra vacation, or even a share in company profits. Milestone rewards reinforce loyalty and recognize long-term commitment. 

Other benefits 

Golden handcuffs can also include other fringe benefits such as: 

• extra paid vacation days 
• flexible work arrangements 
• vacation homes or travel perks 
• company cars or transportation allowances 

These benefits may seem less direct than cash bonuses or stock options, but they can be highly valued by employees. They also help differentiate the company’s compensation package from competitors. 

Pros and cons of golden handcuffs 

Golden handcuffs offer clear benefits but also carry risks. Let's go over some benefits and downsides to this type of incentive. 

Pros of golden handcuffs 

There are upsides to having golden handcuffs as part of a competitive employee compensation strategy. The organization and its people stand to benefit in these ways: 

Retain top talent 

Golden handcuffs are designed to keep top employees from leaving. This is especially important in industries where skills are scarce and turnover is costly. 

Reduce turnover costs 

Replacing experienced employees is expensive. Recruitment, training, and lost productivity all add up. Golden handcuffs help reduce these costs by encouraging employees to stay. 

Read our report on the cost of turnover, available as premium content when you subscribe to CHRR+. 

Attract high-quality candidates 

A strong compensation package, including golden handcuffs, can make your company more attractive to top talent. Candidates may choose your organization over a competitor because of the long-term financial benefits. 

Align interests 

Golden handcuffs often tie rewards to company performance. This encourages employees to work hard for the company’s success. When employees have a stake in the outcome, they’re more likely to go the extra mile. 

Cons of golden handcuffs

To get a balanced look at this compensation tool, let’s look at some potential drawbacks: 

Employee disengagement 

Not all employees respond positively to golden handcuffs. Some may feel trapped, especially if they’re unhappy in their role. A 2020 study on burnout found that “golden handcuffs” was a top phrase used by burned-out employees to describe what made their workplace “great.”  

This suggests that golden handcuffs can sometimes mask deeper problems with work environment or culture. As the study says, “golden handcuffs point to toxic company culture bubbling under the surface.” 

Burnout and mental health risks 

Long hours, high pressure, and lack of control can lead to stress and poor work-life balance. Burnout is a real risk, as we’ve seen in the previous point.   

Delay the inevitable 

Golden handcuffs may only delay employees from leaving, rather than address the real reasons they want to go. If the work environment is toxic or growth opportunities are limited, employees may eventually leave once the incentives run out. 

Real-life case studies 

Now let’s go over actual examples of golden handcuffs and their effect on people at work. Let’s look at a tech company, an investment firm, and a Wall Street hedge fund: 

Nvidia   

Nvidia, a global tech leader, is known for its generous stock options and lucrative pay packages. These golden handcuffs have helped the company maintain an extremely low attrition rate—just 3 percent compared to the industry average of 18 percent.  

All is well at Nvidia...or so it seems. Reports have surfaced about a high-pressure work culture, with long hours and intense demands. Some employees admit they would have left if not for the financial incentives.  

This shows how golden handcuffs can keep talent in place even when the work environment is challenging.  

Bennett Goodman and Blackstone Group 

In 2019, Blackstone Group, a major investment firm, offered Bennett Goodman a $200 million share award with faster vesting as part of a golden handcuffs package. The goal was to prevent Goodman, a top executive, from leaving the company.  

Despite these incentives, Goodman still chose to depart later that year. This case shows that even the most attractive golden handcuffs can fail if an employee’s personal or professional goals change. 

Ryan Renteria at Wall Street  

Wall Street hedge funds are famous for using golden handcuffs—large deferred bonuses and stock options—to retain top performers. Ryan Renteria, a former partner at a hedge fund, described how these incentives kept him in a high-paying but stressful job. Bonuses were partially deferred and would be lost if he left.  

Eventually, the toll on his mental and physical health led him to walk away, despite the financial loss. This case highlights the personal sacrifices employees may make to unlock golden handcuffs, and the limits of financial incentives when well-being is at stake. 

Best practices for long-term incentive plans

Golden handcuffs can be effective, but only if implemented thoughtfully. Here are some best practices to consider: 

Ensure transparency 

Be clear about the terms and conditions of golden handcuffs. Employees should understand what they are agreeing to, including vesting periods and any repayment requirements. Transparency builds trust and reduces misunderstandings. 

Offer a variety of incentives 

Not all employees are motivated by the same rewards. Offer a mix of financial benefits, stock options, and work-life perks to appeal to different needs. A tailored approach to incentive compensation management is more likely to succeed. 

Review and adjust 

Review your golden handcuffs programs regularly to ensure they remain effective. Get feedback from employees and be willing to make changes if something isn’t working.  

Focus on work environment 

Don’t rely on golden handcuffs alone to keep employees. Invest in a positive work environment, opportunities for growth, and a healthy work-life balance. Employees who feel valued and supported are more likely to stay. 

Be aware of legal and compliance risks 

Work with legal and financial experts to design your golden handcuffs programs. Make sure your employment contracts are clear and comply with Canadian laws. This is especially important for complex plans like SERPs or deferred compensation. 

Communicate  

Keep lines of communication open with employees. Explain why you are offering golden handcuffs and how they fit into the overall compensation package. Open dialogue helps build trust and engagement.

Alternatives to golden handcuffs 

Golden handcuffs are not the only way to encourage employees to stay with the company. Many organizations are finding success with alternative strategies that focus on engagement, growth, and well-being. 

Fostering a positive work environment 

A healthy work environment is often the strongest reason employees stay. When people feel respected, included, and supported, they are less likely to look for opportunities elsewhere.  

Simple actions—like recognizing achievements, encouraging teamwork, and listening to employee feedback—can make a big difference. 

Supporting career development 

Many employees want to grow in their roles. Offering training, mentorship, and clear paths for advancement can be more motivating than financial incentives alone. When employees see a future with the company, they are more likely to stay for the long term. 

Promoting work-life balance 

Flexible work arrangements, such as remote work or flexible hours, are increasingly important. These options help employees manage their responsibilities both at work and at home.  

Providing support for mental health and wellness programs also shows that the company cares about employees as people, not just workers. 

Building a strong employer brand 

A company known for treating its people well will attract and retain top talent. This includes fair pay, but also a reputation for ethical leadership, diversity, and inclusion. Employees want to be proud of where they work. 

Encouraging employee ownership 

Some companies offer broad-based employee stock ownership plans (ESOPs) instead of targeted golden handcuffs. These plans give all employees a stake in the company’s success, not just a select few. This can boost engagement and loyalty across the organization. 

Providing meaningful work 

Employees are more likely to stay when they feel their work matters. Connecting individual roles to the company’s mission and values helps people see the bigger picture. When employees understand how their efforts contribute to success, they are more invested in staying. 

Listening and responding to feedback 

Regular check-ins and employee surveys can reveal what matters most to your team. Acting on feedback—whether it’s about workload, communication, or recognition—shows that leadership is responsive and committed to improvement. 

Recognizing and rewarding contributions 

Recognition doesn’t always have to be financial. Public praise, awards, and other forms of recognition can be powerful motivators. When employees feel seen and valued, they are more likely to stay with the company. 

Making golden handcuffs a good thing 

Golden handcuffs can be a powerful tool for retaining top employees and encouraging them to stay with the company for the long term. But they are not a magic solution. Used wisely, golden handcuffs can help reduce turnover, attract top talent, and align employee interests with company goals. 

As you consider whether golden handcuffs are right for your organization, remember to focus on what really matters: creating a workplace where people want to stay. Not just because of the money, but because they feel valued, supported, and inspired to do their best work. 

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