What Is a Golden Hello?
The term golden hello refers to a signing bonus offered to executive-level employees. They are usually employed as a way to entice and recruit executives from rival companies. The payment of a golden hello typically comes in the form of a lump sum cash payment or through installments over a specified period of time when an employee officially joins the firm. As with any other type of compensation, golden hellos are subject to taxation. Golden hellos became subject to scrutiny, especially after the financial crisis that led to the Great Recession.
- A golden hello is a bonus offered to executive-level employees by hiring companies.
- It is often used as a way to lure talented individuals away from rival companies.
- Sectors like finance and technology have often used golden hellos as a recruitment technique for executive hires.
- The flat tax on supplemental income like a golden hello is 22% if the bonus is under $1 million.
- Golden hellos came under intense scrutiny by shareholders and the public, especially after the 2007-2008 financial crisis.
How Golden Hellos Work
Companies use different strategies and tactics to attract the best possible talent. This may come in the form of certain benefits (such as paid health care and extra paid time off) or generous compensation packages. Some of these packages may include large signing bonuses, which are called golden hellos.
Golden hellos are usually offered to high-level employees, such as management and executive staff. They are commonly used as a way to entice (successful) individuals to leave a rival company and join another. These bonuses have been common in certain sectors, particularly:
- Consulting companies
The hope of offering a golden hello is generally that the new employee's value and knowledge would exceed the cost of the bonus. Luring them away from the competition would hopefully, thus, benefit the offering organization.
Depending on the industry and the size of a company, a golden hello may run into millions of dollars. This signing premium is a calculated risk by the hiring company. The prevalence and size of golden hellos reflected a robust labor market prior to the 2007-2008 financial crisis. These lucrative bonuses served as a way to distinguish one employer from another in competitive industries. But they became less commonplace as people began to scrutinize and criticize these large payouts.
A golden handshake is a large severance package that a company negotiates and pays to an employee (usually an executive) if they lose their job due to negligence, layoff, or retirement.
Golden hellos are subject to taxation just like any other type of compensation. The amount of tax owed is assessed at the time of receipt and based on the amount received. For those who work in the U.S., the Internal Revenue Service (IRS) requires employers to tax the sum as supplemental wages.
For golden hello payments under $1 million, this tax rate could be as high as 22% of the total bonus. The IRS does allow the employer some flexibility, and the employee may see some savings when reporting the amount with regular wages. Those who receive a larger golden hello can expect to have the amount over $1 million taxed at 37% or the highest rate for the year.
If a golden hello (or similar) payment is made to an employee in the United Kingdom before they begin work, the tax must be deducted using a basic rate (BR) tax code.
Criticism of Golden Hellos
Golden hellos and other types of signing bonuses were very common before the Great Recession. They allowed companies to attract and acquire talent, usually from their competitors. These individuals were also often paid hefty salaries to match the other incentives they were given to join.
But executive pay packages became heavily scrutinized and criticized more intently after the financial crisis. This was especially true since golden hellos didn't necessarily mean that a company would succeed, leading to heavier financial burdens and strains.
Shareholder support and public acceptance of such forms of payment also came under fire. As such, corporate boards are now much more conscious of their bottom lines and the impression these big-dollar compensation packages convey, both internally and externally.
Example of a Golden Hello
In 2010, Nokia (NOK) began its search for a new chief executive officer (CEO). The telecoms, IT, and electronics company landed on Stephen Elop and poached him from his position as the head of Microsoft's (MSFT) office division in September of that year, paying him more than $6 million in the process.
Nokia was one of the largest mobile phone makers at the time, but it was going through a period of hardship, especially with costs. But rather than take an upward trajectory, the company's valuation continued to drop. Elop is said to have taken many unnecessary risks while at the helm, including selling its phone division to Microsoft in 2013.