The use of retention compensation for executives and senior management has significantly grown in recent years. Although retention compensation is simply a way to defer payment long-term, this type of reward is put into place due to a set of circumstances that trigger the need for additional compensation.

Events Triggering Retention Compensation

A key employee is typically offered additional compensation in exchange for the employee continuing to work for the company for a specified period. Common events that trigger retention compensation include:

• A substantial restructure or reorganization of the company
• A pending merger or acquisition of the business
• A planned succession of the leadership of the organization

If an employee is considered by the entity’s leaders to be “key” to the continued success of the company or to maintain the ongoing value of the business, a retention bonus is offered as an incentive for the employee to remain. Typically, the employee has important contacts and connections or offers certain talent or skill, that should be retained during the transition period.

The Success of Retention Compensation Plans for Executives

If you are an executive who desires to remain employed by the entity, a retention bonus can be extremely beneficial. Everyone loves the idea of additional compensation but negotiating this type of agreement can also lead to other benefits. For example, you may request additional vacation time or a larger expense account. Employers typically realize that valuable employees have other options available to them, so it is important to use this opportunity to negotiate for what will make your life better if you remain as an employee.

The Success of Retention Packages for Employers

From an employer’s point of view, retention strategies must be organized and well-planned. The most important factor in determining which employees truly impact the company’s value and its likelihood of continued success. In other words, retention compensation should only be offered to the employees in areas where the interruption caused by their absence would be costly. The sooner these employees are identified in the reorganization, merger or acquisition process, the better. An acquiring party will want to contact these key employees as soon as possible. Additionally, employers must understand that monetary incentives are often not enough to convince certain executives to stay with the company. Contact with the new decisionmakers and participation in the transition is important to most executives. This includes making performance expectations clear, especially if adjustments in compensation are based upon goals being met or are service-based awards. Finally, the appropriate time for the employee to be retained by the company must be reasonable while also ensuring the successful integration of the new entity.

Whether you are an executive or an employer considering a retention compensation package, let our knowledgeable and experienced attorneys assist you. Contact our office today to schedule a consultation.