WHAT IS 'Golden Hello'

A golden hello is a signing bonus offered to executive-level employees as an inducement to join from a rival company. The payment, which typically comes in the form of a cash lump sum upon an employee joining the firm or in installments over a set period of time, is an award for services to be rendered. Payments are taxed at the time of receipt. If a payment is made to an employee before he or she starts work, tax must be deducted using a BR tax code. 

BREAKING DOWN 'Golden Hello'

A golden hello may run into the millions of dollars, depending on the industry and the size of the company. This type of signing bonus is a calculated risk by the hiring company, as it hopes that the value and knowledge that the poached executive coming on board will exceed the cost of the bonus

Before the financial crisis of 2008-2009, the prevalence and size of golden hellos reflected a robust job market, and served as a way to distinguish one employer from another in competitive industries. Certain sectors utilized golden hellos more than others. In particular, technology, finance and companies providing consulting services were among those that deployed this recruiting technique to lure high-level executives away from their competition.

However, following the financial crisis, executive pay packages are scrutinized much more intently, and shareholder support and public acceptance of such forms of payment has come under fire. Boards today are much more conscious of their bottom lines and how compensation packages will be viewed, both internally and externally. 

The Golden Hello and environmental, social and governance

Environmental, social and governance criteria is a set of standards for a company’s operations that many investors now use to screen potential investments. Environmental criteria look at how a company performs as a steward of the natural environment. Social criteria examine how a company manages relationships with its employees, customers and the communities where it operates. Governance, among others including corporate leadership, internal controls and shareholder rights, considers executive pay as well.

Governance is now recognized as an important determinant of corporate accountability and performance. High levels of executive pay remain the norm, including golden hello-type payments in certain situations, even post-financial crisis. Linking ESG to pay can help companies remain aligned with their long-term strategy and shareholder interests. 

Any lack of alignment with matters concerning executive compensation, may be a concern for longer-term investors, giving them a potential risk to consider when determining whether a company meets their own investment criteria.

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