How to Retain Key Employees when Selling a Business

If you are trying to sell your company because it is struggling to be successful, but it also has significant value, whether to offer retention contracts to key employees can be a difficult decision. Most buyers want your top performers to come as part of the deal and, once the deal has closed, the new owner usually offers retention packages.

As soon as your employees learn of your intent to sell the company, they start to worry about their own future. They may immediately start looking for other job opportunities. You can also bet that your competitors will try to poach your top performers too. Thus, it is important that you handle the announcement of the sale and your intentions for your employees very carefully.

One of the most important things a selling owner can do is build strong relationships with your key employees. If you maintain an open dialogue and keep your employees involved in attempting to solve company issues, your employees will feel a stronger sense of loyalty. If an employee is kept in the dark about what is going on, he/she will feel no allegiance to the company or its continued success.

When a company is being sold, it is normal for employees to balance risks versus rewards when trying to decide if they should stay. The biggest risk is being without a job if the company fails to sell or closes. The most alluring reward is enjoying the benefits of the sale. Employees who remain with the company may see an increase in stock options or be offered a retention package from the purchaser, as well as have the possibility of continued employment with the new entity.

If a key employee is on the fence about whether to stay with the company or not, offering a stay bonus could provide the economic incentive needed to stay. The amount of the bonus should be significant enough to overshadow the risks involved with staying with the company. It is commonplace for stay bonuses to range from three to six months’ salary, to even more, to keep top performers. An employer must consider the employee’s position, the industry and other similar job opportunities that may be available to the employee. If the company is short on cash, consider offering a percentage of the company’s sell amount.

If you are considering selling your business, let the legal team at Mailly Law provide you with the advice and guidance you need. Negotiating and drafting employee retention agreements is our primary area of practice. Contact our office today.