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Sterling Employment Law

Retention agreements and how to use them

During an acquisition, upper management from the acquiring company typically recognizes the key talent in place at the other organization. After all, it was these people who helped make the company an attractive acquisition target.

Retaining high achievers is a priority. The first step is to create effective retention agreements.

What are retention agreements?

Retention agreements are contracts that entice top-performing employees to stay. The agreements provide financial incentives to persuade employees to remain after a merger or acquisition.

Retention bonus agreements often surface in merger and acquisition (M&A) scenarios. By keeping key leaders, there likely will be fewer hiccups during the M&A process and beyond.

Another scenario is when a business is closing. When this is the case, retention agreements can be used to entice people stay to complete operations.

Things to keep in mind

Here are things to remember about retention bonus agreements:

  • Before offering, have a thorough understanding of how the agreements work, as well as the financial ramifications they will have for your company.
  • Make the offers attractive. The bonus amounts should be enough to convince the person to remain with the merged entity.
  • Be transparent about the details. Do not hide anything.
  • Focus on the details. Define how the person's role will change, the length of the agreement and how much money will be paid if they stay with the company long enough. Also define what happens if the person leaves the company before the agreement's target dates.
  • Rely on your trusted management team and legal counsel to craft the agreements. Consider retaining outside legal assistance.

Take the time to ensure both sides understand the retention agreements. Work with legal counsel to ensure the retention bonus agreements achieve your objectives.

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Sterling Employment Law

Sterling Attorneys at Law, P.C.
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