What Issues to Address in Your Retention Agreement

If the company you are employed by is involved in a pending merger and acquisition (M&A) or other form of reorganization, and you are negotiating a retention agreement, having an experienced on your side is critical. Many key employees make the mistake of attempting to handle their retention contract on their own, only to realize how much they missed out on when it is too late to do anything about it.

Start at the Beginning

The first place to start is to review your original employment agreement. When you were initially seeking to be hired, you likely did not have significant bargaining power. However, now that you have proven yourself to the entity’s leadership and they have recognized that you bring significant value to the company, your bargaining power is much stronger (especially with your attorney involved!). In other words, you may be able to obtain certain rights and benefits that you were not able to obtain when you were first hired.

While your initial employment contract can provide a starting point, you should not limit yourself to the issues covered by it. Now that you have been employed by the company for a significant amount of time, you likely understand the financial and operational aspects of the business much better. Use this inside information to your benefit. If your continued employment by the company brings value to the business, you must focus on that during negotiations of your retention contract.

Items to Address in Your Retention Package

An attorney experienced in negotiating and drafting retention agreements will have a list of issues that should be covered in your contract, but the following are a few examples of elements to consider:

  • What is your compensation, including a retention signing bonus and any raise in your salary?
  • What are any potential revisions to the level of and how your executive’s bonus is determined?
  • Will you be granted base and/or incentive equity? Your attorney can help structure stock rewards which allow you favorable capital gain tax treatment
  • When and how are you allowed to sever your employment agreement? If certain terms you relied upon are not met, what are your rights?
  • What measures can be taken to avoid or minimize your excise tax exposure, if any?
  • What are the non-compete requirements? Are there any other restrictive covenants that will impact your future employment opportunities?

Presentation

In addition to addressing the above items, your attorney will also present the acquiring company’s leaders with an analysis comparing the total cost to retain you versus the financial benefit the company will obtain by keeping your services during the critical transition period. The minimal amount spent on your retention package will be presented as a small fraction of the value you bring to the new entity.

To learn more about how we can help you obtain the most beneficial retention agreement possible, contact Mailly Law. We will fight for your rights and help ensure that you leave nothing on the table!