Senior executives need to understand when the use of stay bonuses is appropriate. It is not necessary to offer every employee a stay bonus, because there are many employees who the company can afford to lose without suffering any hardship. The only employees who should be offered a stay bonus are those that are necessary for a successful transition of management or ownership.

Retention Agreements

A stay bonus, also called a retention bonus, is a monetary payment made to a key employee in exchange for his/her agreement to remain with the company for a certain amount of time. There are many ways to structure the payment of the bonus. It can be paid in full upon the signing of the contract, after an agreed amount of time, or upon the occurrence of a triggering event (such as the death of the business owner).

Why is a Retention Bonus Needed?

In a merger or acquisition, the acquiring entity will want assurances that the key employees or top managers will stay with the company during the transition and help ensure the new entity’s success. Additionally, if the company is a family business that is being passed to the next generation, having a formal written plan can help the family business survive the transition. Having the expertise of the first generation during the transition and for a period of time thereafter can be the difference between success and failure of the business.

How a Stay Bonus Helps

Offering a stay bonus not only helps retain the skilled people who are essential to the daily operations of the business, but it also allows the company to provide a financial incentive to its top producers who have long-term relationships with the company’s clients or customers. In both instances, the retention agreement also prevents your employees from going to work for the company’s competitors.

If you need the advice and guidance of an experienced business attorney, contact Mailly Law today to schedule an appointment with one of our knowledgeable attorneys. We can help answer questions regarding employee retention or any other business issue you are facing.