The primary reason employers offer retention bonuses is to ensure key employees will remain with the company after a merger, to protect relationships with important clients during the transition, or to continue to gain from your unique knowledge or skill. In other words, you are deemed to be valuable to the continued success of the company. Thus, we highly recommend that you obtain independent counsel to review the proposed retention agreement, or to draft it on your behalf.
A few other tidbits to consider when you are offered a retention bonus include:
● Read the proposed agreement with a watchful eye for the “sole discretion” language that strongly favors the employer. This clause typically states that the employee will only be paid the retention bonus if the employee satisfactorily performs in the “sole discretion” of the employer. This language can be a trap because it gives the employer sole power to decide if you earned the bonus or not. At a minimum, the language should require the employer to use “reasonable discretion.”
● Another clause that is commonly found in retention contracts is the requirement that the employee be “actively employed” on a set date in order to receive the bonus. This language can cause issues if you are terminated without cause prior to the set date. It is better for the employee to be eligible for the retention bonus if he/she does not resign before the set date.
● Similar to the two points outlined above, all provisions of the contract should be reviewed to eliminate conditions the employee cannot control. For example, if your bonus hinges on the closing of the merger, but the merger does not occur due to no fault of the employee, the bonus may never happen.
● If your retention agreement allows for your termination “for cause,” it likely also nullifies your bonus payment upon such termination. It is
important to negotiate a provision allowing you to receive a detailed explanation of what you allegedly did wrong as well as a 14-day period to rebut or cure the issue.
● Finally, don’t be afraid to request a larger bonus payment. If you make the request reasonable, and you present it in a respectful manner along with an explanation of why you are making the request, there usually is very little downside. As they say, you can’t get ahead without taking a few risks in life!
If you are an executive considering a retention compensation package, let our knowledgeable and experienced attorneys guide you. Contact our office today to schedule a consultation.