Retention Bonuses….Should You Ask for One?

Why do employers offer retention contracts to certain employees? The simple answer is because the employer needs to guarantee the employee’s continued services. The bigger question is when do employers typically offer retention bonuses? Below are different circumstances where employers typically offer retention contracts:

Mergers or Takeovers

If two companies in the same industry are merging, they usually each have employees for every job. Employees immediately recognize that some people will likely be let go and not included in the new entity, so you don’t want the ones you need to retain to start looking for a new job. Offering retention bonuses serves several purposes, including:

● Motivating the employee to stay with the company

● It is typically a one-time deal that shows the company’s appreciation for the employee’s efforts

● Depending on the agreement, the employer may have flexibility and not be obligated to retain the employee for a certain length of time. Similarly, the agreement may not require the employee to stay for a lengthy period.

Critical Transaction

If the company is attempting to close an important transaction, it may need certain personnel to remain with the business so it can fulfill its contractual obligations. This is particularly true if management believes key personnel are looking at other job offers.

Annual Bonuses

Many companies have a structured bonus schedule based on its profits. These bonuses are typically provided for in company policy and formalized in writing. For example, an employee who has been with the business for a specified amount of time and has met performance criteria may be eligible for a retention bonus.

Should an Employee Ask for a Bonus?

An employee considering requesting a bonus must understand his/her value to the company. What would be the cost to the company if you left? Is your company going through a transition that makes you more valuable?

You should also assess how your company leaders will respond if you indicate that you are looking for jobs elsewhere. Will they wish you luck and send you on your way? Are you willing to take that risk? Remember, the company is ultimately focused on what the business needs, not what you need.

If you decide to ask for a retention bonus, have a clear plan of how to “sell” the idea. You want the company leaders to believe that paying the bonus will be a fair deal in exchange for a devoted, valuable employee who will significantly increase the company’s chance of success. Putting your request in writing can help ensure that you sound respectful and reasonable, not threatening.

If you have questions regarding retention bonuses, we can help. We have years of experience and understand the complexities involved in retention agreements. Contact our office today to schedule your appointment.