Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Golden Boot

What it is:

A golden boot is a financial package meant to encourage an employee to retire early.

How it works (Example):

For example, assume that John is 60 years old and has been working at Company XYZ for 30 years. The company is under severe financial distress and needs to reduce its overhead. About half of the employees are over 55 and have been receiving raises for a number of years, making their annual salaries and benefits packages much higher than what Company XYZ would pay if it were to hire new, younger workers.

Company XYZ cannot force the older employees to leave the company, but it can encourage them to do so by offering them golden boots. So Company XYZ offers John seven months' pay, a year of health insurance, and early access to his pension plan in return for him agreeing to leave the company at the end of the month (and agreeing not to sue Company XYZ for age discrimination after he leaves).

Why it Matters:

Age discrimination in employment matters is largely illegal in the United States. A golden boot is an incentive to get employees to voluntarily retire rather than forcing them to retire. The process of persuading employees to retire early usually occurs when companies want to trade highly-paid employees for lower-paid new employees or when they simply want to reduce overhead.

Golden boots can be controversial. On one hand, they help companies lower costs by getting rid of relatively overpaid employees. Alternatively, they sometimes come across as distasteful when the purpose is to replace those employees with younger, cheaper ones.