In the modern business world environment, it is common for executives and other high-ranking officers to change jobs every few years. Whether they move for a more lucrative opportunity or their company merges with another entity, it is common for the company to ask the executive to sign a change of control agreement or retention agreement. In some circumstances, the executive may be the party requesting the retention agreement. Thus, it is important to understand why these types of agreements are required and what key terms should be included in them.
A retention agreement is commonly used when a business is being acquired by another entity and it is crucial for the company’s continued success to retain its key management or other critical employees in the time period leading up to the sale. During the transition, the company wants to ensure its key employees will remain and continue to provide the value being represented in the acquisition. Of course, sometimes the buyer wants to retain the CEO or founder for the long-haul to continue the spectacular growth of the business.
Other Circumstances Warranting Retention Agreements
A retention agreement may be desirable in circumstances other than a merger or acquisition situation. If you are a senior executive or other key employee of your company, it is important to seek experienced counsel to negotiate favorable terms rather than simply agreeing to the contract presented by the company. In other words, don’t sign an agreement that was drafted to primarily benefit the company. Take action to protect your rights and best interests, especially if you are in the position of having leverage.
For example, if you are being offered a position with another company, it is important to examine how important you are to your current employer. The prospect of negotiating a retention agreement could not only benefit your current employer by keeping you as their employee, but it could also provide you the opportunity to improve your current status with your company. You may be able to negotiate a higher salary, more benefits, a new title, or any other improvements in your current employment situation,
Some of the other circumstances where the value of a key employee is so high that a retention agreement should be considered are as follows:
● If your company is seeking new funding and the lender will be examining the potential of future success of the business
● When the company is close to achieving a milestone, especially if the event could result in a liquidity event
● If your company is planning for its IPO or the retention of the key employee is necessary to its IPO success
● When the executive has the relationships with the company’s key customers or accounts, which could be at risk if the executive leaves
● If the key employee has close relationships with the company’s primary managers and performers, which could result in attrition if the executive leaves
● A key employee who invented or plays a crucial role in the company’s product creation, development or maintenance
● When the executive is the “face of the company” or has otherwise earned the reputation and goodwill of the company such that his/her departure
from the company could negatively impact the perception of the company in its industry or business community
Mailly Law is knowledgeable and experienced in handling retention agreements. We will help you understand all your options and aggressively negotiate every benefit and protection in your favor. Contact us today to schedule your appointment.