Golden handcuffs: Should employers use them on top talent?

Picture this.

You just landed a high-paying job at a major company due to your talent, work ethic, and in-demand skill set.

Your employers are highly impressed with your capabilities and don’t want to lose you to a competitor.

To ensure you don’t leave, they slap a pair of golden handcuffs on your wrists – metaphorically, of course.

In actuality, they offer you deferred financial incentives such as employee stock options, large bonuses, and attractive compensation packages. Since they’re deferred, though, you will receive these benefits once a set period passes, such as several years.

At this point, you have a genuine incentive to remain with the company for the immediate future. Otherwise, you won’t be able to claim your deferred compensation.

This is how employers’ trap’ top-performing employees into staying at their organizations, which is why the term ‘golden handcuffs’ is used.

Since the employee receives so many attractive benefits, they feel ‘handcuffed’ to their current role.

While this isn’t always a bad thing, it can have detrimental effects on an employee’s mental health if they no longer enjoy the work they do.

Once burnout sets in, golden handcuffs can become an absolute nightmare.

Should employers continue to use golden handcuffs to encourage key employees to remain on, or is the practice too unethical?

I will explore this question today, so stay tuned to learn more about golden handcuffs.

What are golden handcuffs?

Someone is said to have golden handcuffs whenever their job’s perks, such as high salaries or compensation plans, are too attractive to leave.

As a result, they’re effectively stuck in their current role, regardless of whether they find the work fulfilling.

If an employee feels content and doesn’t have other ambitions, golden handcuffs are not inherently harmful. They can actually assist employers in keeping their best employees.

However, golden handcuffs can negatively affect employees’ well-being if they no longer enjoy their work or want to pursue other life goals.

As a theoretical example, a highly compensated employee in a fast-paced industry like healthcare or tech may experience burnout after several years on the job.

Instead of continuing to grind it out in their current role, they’d much rather move into a slower-paced role at a philanthropic organization. This would also give them a chance to give back to the community, which they find very fulfilling.

Yet, their compensation package is too strong to walk away from, especially since the employee has two kids they’re trying to put through college, and they depend on their company car.

To make matters worse, the employee has deferred stock options that become active in three years, and they’ll lose everything if they walk away now.

This fictional scenario is quite common for employees with golden handcuffs, which is why the practice sometimes raises some moral questions. Golden handcuff techniques can improve employee retention. They can also encourage top employees to exceed expectations. However, adverse side effects exist. These side effects can harm an employee’s mental and physical health.

Golden handcuffs: Two real stories

Let’s consider a real-world example where golden handcuffs wrecked an employee’s work-life balance.

According to an interview by the BBC, Lewis was an entry-level consultant for a top firm in Berlin, Germany. His new job featured many benefits and a six-figure salary, but he knew a high-pressure work environment would be the trade-off.

Still, he needed to prepare for the sky-high expectations of his new job.

“If you’re not working 12 hours straight, the response is, ‘You’re being paid this much, you have to.’ When you earn such a high wage, it’s a psychological block. You feel you’ve earned it and worked hard to get there. You want to get out, but how much of a salary cut can you take?”

Lewis’s situation perfectly exemplifies the conundrum many employees with golden handcuffs find themselves in.

Besides being unable to leave their jobs due to the attractive benefits, they also experience higher expectations than employees earning lower wages.

Employees quickly adapt to higher wages. This may lead them to buy new cars, upgrade homes, or make other significant purchases. However, this is a double-edged sword. If they become dissatisfied with their job, the increased income makes it harder to leave.

Such was the case for Lucy Puttergill, another employee who spoke with the BBC.

She spent nine years in finance due to the prestige and high salary, and she soon adjusted to her inflated wage.

“I spent a lot on numbing: buying clothes to make myself feel better. Unraveling my relationship with money was necessary for me to leave.”

She has since retrained as a life coach and adjusted to her new financial situation – and is much happier for it.

Common examples of golden handcuffs

As mentioned before, golden handcuffs are intentionally placed on top-performing employees by their employers in an attempt to retain them indefinitely.

More often than not, golden handcuffs take the form of deferred financial incentives, which include:

• Annual bonuses
• Deferred compensation packages
• Stock options
• Company car
• Payouts
• Supplemental Executive Retirement Plans (SERPs)
• Extra paid vacation days
• Vacation homes
• Flexible working conditions
• Pension plans
• Using company facilities for free

As you can see, golden handcuff incentives can take many forms. It’s also important to note that these incentives, such as flexible working conditions, are only sometimes financial.

In fact, offering flexible working schedules to employees can have a positive effect on their work-life balance instead of a negative one. However, financial incentives are more common, and the deferred model is the most common.

That’s because deferred benefits provide employees with a ‘carrot on the stick’ situation, which can keep them in their positions for decades.

An example would be deferred stock options that only take effect once an employee has been with the company for ten years. They can only activate their stock options once they stay with you for a decade, which can encourage them to stay.

Prestige and lifestyle are two other factors that contribute to golden handcuffs.

For example, some employees enjoy the status that comes along with C-suite roles and high-paying jobs. Even if they’re miserable in their day-to-day operations, their role’s prestige keeps them returning for more.

Benefits of golden handcuffs

This isn’t to say that golden handcuff incentives are ineffective when utilized properly. There’s a reason the practice has been around for so long: it yields results.

Here’s a look at the primary advantages of using golden handcuffs for top-performing employees.

Improved employee retention

The primary goal of golden handcuff incentives is to retain top talent. They aim to keep these employees for as long as possible, and they are highly effective in achieving this goal.

In today’s job market, there is a massive skills gap worldwide. According to the Society for Human Resource Management, the skills gap is so large that nearly half of all employees will need retraining in this decade.

Since they’re so scarce, there’s a war going on to obtain skilled employees, and golden handcuffs are an effective weapon.

By providing attractive benefits they can’t find anywhere else, you can attract and retain skilled talent for your team, which is a plus. Also, since the competition is so fierce, deferred benefits can stop talented employees from leaving your company prematurely. If your compensation package is better, you will be able to hang onto your top performers.

Easier to recruit new employees

Golden handcuff incentives also make it easier to recruit new talent, but you’ve got to make sure you’re providing what new hires want.

In the current era, employees want flexible working schedules and even compensation packages.

The COVID-19 pandemic and The Great Resignation of 2021 (where more than 47 million people quit their jobs) changed the work environment forever. In particular, employees got a taste of remote and hybrid work schedules, and they were instantly hooked.

According to a survey by Slack, 94% of employees want to ditch working 9-to-5 in favor of flexible schedules.

That means offering hybrid schedules as a golden handcuff incentive is likely to attract a lot of new talent to your organization.

Of course, financial incentives are always appealing, so provide bonuses and other monetary perks if you have the capability.

Show your appreciation to top talent

The idea behind golden handcuffs isn’t nefarious, even if it does lead to some nightmare-like situations for some employees.

At their core, golden handcuffs are a way to show appreciation to your highest-performing employees. Top-tier salaries, company cars, and stock options are all ways to show gratitude and trust in your employees, which can have positive effects.

If your employees are happy in their roles, golden handcuff incentives become a powerful tool. They demonstrate to your team that you truly value their daily contributions.

Drawbacks of golden handcuffs

A report by BambooHR discovered that employee happiness has hit a 4-year low, which means employee satisfaction is now lower than it was at the height of the pandemic.

The statistics are surprising, and golden handcuffs are not helping the issue.

Here’s a look at the downsides of using golden handcuffs at your organization.

Burnout and negative effects on mental and physical health

Often, employees who feel trapped by their golden handcuffs experience high levels of stress, depression, and anxiety.

It could be that they no longer find the work fulfilling, making every day feel like a chore. They could also be suffering from long work hours, tight deadlines, and a lack of resources to do their jobs properly.

Whatever the reason, employees who feel stuck will usually either quit or begin to neglect their responsibilities.

A lack of engagement from top performers

You want to retain top talent mainly because of their high levels of engagement and productivity, right?

Well, if their golden handcuffs cause them to become depressed and unhappy, their stellar job performances will begin to stutter.

As a result, your top performers will cease to be as productive, making their financial incentives more of a waste than a wise investment.

It’s crucial for managers to gauge how their employees are doing physically and mentally to avoid this from happening. If they discover the employee is no longer happy in their role, you should either A) bring them into a new role or B) find a suitable replacement.

Employee resentment

Lastly, if your top performers truly feel trapped by their golden handcuffs, and if you don’t address their concerns, resentment can form over time.

This is never good, as it will erode the employee’s loyalty to your organization, which is different from what you want. In this sense, the golden handcuffs backfire since your goal was to retain the employee, not get them to leave.

Ensure you keep a close eye on golden handcuff employees to gauge their well-being. If something feels off, sit down and have a 1:1 meeting with them to find out what’s wrong.

Final thoughts: Golden handcuffs in the workplace

In the end, golden handcuff incentives are a retention tool, and employers must decide how to use them.

When handled with care, golden handcuffs can help you retain top performers and attract new talent to your organization. When handled poorly, they can lead to resentment, resignations, and a bad company reputation.

If you do your best to consider your employees’ needs while providing golden handcuffs, you shouldn’t have any trouble.

More Resources:
Work life balance examples: Your guide to a more fulfilling life
Talent shortage solutions: A forward-thinking strategy for business growth
Skills-based hiring: Punching through the paper ceiling