During an acquisition, upper management from the acquiring company typically recognizes the key talent in place at the acquired 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 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 to stay to complete windup operations.
From the employer’s perspective
Here are things for companies to remember about retention 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 company at a time when the employee may be receiving lucrative offers from other companies.
- Be transparent about the details. This is not a time to be coy — you need these people.
- Focus on the details. Define how the person’s role will change, the length of the agreement, and how much money will be paid up front, at the end, or both, if the employee stays 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.
From the employee’s perspective
Employees can greatly benefit from retention agreements. However, before signing one, here are some details to consider:
- Do not rush into signing the agreement. Carefully think it over. Do you want to stay? If so, realize that there likely a commitment to continue working for a certain amount of time to receive the retention bonus.
- Weigh the pros and cons of such an agreement, especially if you are considering leaving the company.
- Thoroughly understand the offer and its terms. This includes job title, duties, compensation, bonus and termination. Read every detail. Also, be cautious about any clauses that allow the employer to implement subjective measures and rules within the agreement.
- Consider the impact that a non-competition agreement may have on your future employment; if you already have a non-competition agreement, this would be a good time to make sure it is cancelled. If the employer wants you to sign a new one in exchange for the retention bonus, this may be a good time to refuse unless the employer pays you for the non-competition period.
- Negotiate your utmost to get what you want. This is one of the times when you are in the driver’s seat-the employer probably needs you more than you need the employer.
- Temporarily remaining with the company also gives you a chance to complete unfinished projects along with helping build the foundation for your new employer. But remember, you are a ringer, a temporary player staying on board to bolster results.
Do you have questions?
If you have questions about retention agreements, contact an experienced employment law attorney.