The words "golden handshake" fall in to that special category of phrases that create suspicion and resentment in the minds of the general public (for more examples, consider "banker's bonuses" or "MP's expenses").
A golden handshake is an informal way to refer to a payment made to an employee on the termination of their employment. Charities need to be particularly mindful of the negative impact of such payments given the perception that their funds are being unjustifiably diverted from their intended purpose.
Amnesty International recently discovered this following the outcry caused when their accounts showed a payment of £530,103 to Irene Khan, the organisation's former secretary general, on the termination of her employment. Whilst not a charity itself, Amnesty International is associated with Amnesty International Charity Ltd and reports of this apparent payout are likely to have severely dented public trust in the organisation.
So much so that the chair of their international executive committee, Peter Pack, issued a letter explaining the payment and apologising for the upset that it has caused. Further to this, Irene Khan, through her solicitors, has disputed that the sums recorded in Amnesty's accounts accurately reflect the payments that were made to her.
However, sometimes there are very good reasons for these termination payments being made. Compromise agreements are commonly used by employers to ensure that an employee won't bring an Employment Tribunal claim. Where an employee (or ex-employee) has a genuine claim, they are only likely to agree to sign a compromise agreement if they are suitably compensated for doing so.
Factors that may affect the amount of the termination payment include the likely outcome of a claim (including the potential remedy), the cost of defending a claim and the publicity that may be associated with a claim.
Amnesty justified their termination payment as it avoided legal action that would have caused "enormous damage to [their] operations and reputation". It is arguable that the reports of such a large payment have not avoided this "enormous damage" but each organisation will have to make this decision on a case by case basis.
In his letter, Peter Pack suggested that Amnesty have learnt from this experience and that steps have been taken to avoid the need for such measures in the future. It is certainly true that effective and legally compliant employment practices can minimise the risk of an employee bringing a successful Employment Tribunal claim. But as many employers will know, even the most comprehensive and carefully planned employment practices will not eliminate the possibility of a claim.
Comment
Unfortunately, charities are in a particularly difficult position when deciding on the best course of action. On the one hand, "golden handshakes" may be seen as a misuse of the charity's resources (as demonstrated by Amnesty's experience). On the other hand, defending an Employment Tribunal claim could be even more expensive and there is no guarantee of a successful outcome.
Consequently, each case should be considered on its own merits and a blanket policy is unlikely to be appropriate. However, if a termination payment is made, great care should be taken to ensure that the payment is reasonable.
The contents of this brochure are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.
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