DEFINITION of 'Golden Handshake'

A stipulation in an employment agreement which states that the employer will provide a significant severance package if the employee loses their job. A golden handshake is usually provided to top executives for loss of employment through layoffs, firing or even retirement. Payment can be made several ways, such as cash, or stock options.

BREAKING DOWN 'Golden Handshake'

Sometimes these golden handshakes are for millions of dollars, which makes them a very important issue for investors to consider. For example in 1989, R.J. Reynolds Tobacco-Nabisco paid F. Ross Johnson over $53 million as part of a golden handshake clause severance compensation. Some contracts, along with compensation, include non-competition clauses that state that once employment is terminated the employee is not allowed to open a competing business for a specified period of time.

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