Top 10 Things to Consider in Retention Agreements

During a merger and acquisition, CEOs and other executives must take the negotiation of their retention agreement seriously. These contracts significantly impact your future, so you must invest your time and attention to ensure the agreement helps you and doesn’t hurt you. In other words, you should work with an experienced attorney to negotiate, review or draft your retention contract to obtain the most beneficial agreement possible.

Consider the following 10 things regarding retention agreements:

  1. NEVER sign a retention agreement without reading it carefully. Even better, confer with your attorney to ensure you understand every provision and what options you have to negotiate better terms. Regardless of the amount being offered to you, all the other provisions in the contract are just as important and could significantly impact your financial future.
  2. Remember that if you are a key employee (an employee that is essential to the merger or acquisition being successful), you have a significant amount of leverage so use it to your best advantage!
  3. Keep in mind that the retention contract is being given to you to entice you to stay with the company. You are not required to sign it and the form provided to you is merely a proposal. Your attorney can help you negotiate every provision or redraft the entire agreement if necessary.
  4. Don’t feel pressured to settle for the amount initially offered if it seems unfair. You understand the workings of the company and if your continued employment is essential to the company’s success, don’t be afraid to negotiate for your true worth.
  5. Ask your attorney to include a provision requiring the new leadership of the company to inform you of any pending, planned or considered restructures, or reductions in the workforce.
  6. Confirm that your contract provides that the material components of your position will remain the same during the negotiated retention period. This includes your compensation, benefits, responsibilities, support, resources and reporting arrangement.
  7. Remove any provision that limits you from seeking future employment during your retention period. You need the flexibility to plan and protect your ability to earn a living after you separate from the company.
  8. Carefully review any non-compete clauses in the retention agreement with your lawyer. A restriction from working in the same industry or from contacting your clients when the retention period expires can make obtaining a new job more difficult.
  9. Be wary of any penalties outlined in the retention contract. It is common for an employer to include a clause burdening you with attorney’s fees, damages or other forms of monetary consequences for any breach of the retention agreement.
  10. If your retention agreement provides for a delay in part or all your payment, ask your attorney to request either a present payment or some guarantee of payment by the acquiring entity. You do not want your employer to distribute all its assets and have nothing left to pay you when the time comes.

If you are an executive or other key employee in need of representation during negotiations of your retention agreement in the merger or acquisition of your company, we can help. Protecting your best interests in a retention agreement is our sole focus. Schedule a consultation today!