As with most things in life, the sooner you start discussing retention agreements during a merger and/or acquisitions (M&A), the better. Unfortunately, many times an entity involved in a M&A leaves these negotiations to the very end of the process, which can be detrimental to both the executive and the company.

Retention Contracts

A retention agreement is commonly used to ensure the continued employment of senior leaders, technical experts or other key employees that contribute to the success of the company. The most frequent form of retention contract is the “pay to stay” version which sets a period in which the employee agrees to stay with the company in exchange for additional compensation and/or benefits. This type of agreement is an important tactic for the acquiring entity to use to safeguard the on-going business during the transition. Whether the acquiring entity chooses to use individual or across the organization retention contracts, most are performance-based. Companies and their shareholders are increasingly becoming aware that retaining the right people with the necessary talent can make or break the acquisition.

Due Diligence Process

Most acquiring companies determine during the due diligence process (negotiations) which key employees they want to remain with the company after it is fully acquired. Thus, negotiating a retention package is likely to be much more successful if done before the M&A transaction is closed.

The leadership of the acquiring company should never assume executives will want to stay employed after the deal is closed. In fact, if the acquiring company fails to identify and contact retention targets early in the process, those targets will likely pursue other options. Additionally, executives that hope to be retained will feel valued more if the acquiring leaders make the effort to contact them from the beginning of the M&A process.

Retention Packages

Although “money talks,” other retention tactics should be considered as well. If you are an executive being offered a retention agreement, it is important to confer with an experienced attorney to discuss your options. Do you want to keep your title or your same position? Do you want more vacation time? Is that front parking space important? Obviously, you will have to be reasonable in your negotiations, but it is possible to use your leverage to gain more than just money.

When you are considering whether to stay with the acquiring company after the deal closes, you should also examine the outreach made by the leadership or the managers during the acquisition process. The people you work with will make a difference in the organizational environment, so it is imperative that you fit-in and feel comfortable.

Negotiating and drafting retention agreements is Mailly Law’s primary area of practice. We have years of experience and understand the complexities involved. Let us fight for your rights and help obtain a contract is the most beneficial to you as possible. Contact our office today.