In the business world today, it is common for executives to change jobs frequently. Whether it is due to a better opportunity, or as a result of their company being bought or merged, your business should be prepared on how to deal with this type of transition.

Most companies ask their executives to sign a retention contract, also commonly referred to as a change of control agreement. It is also becoming more commonplace for C-suite executives to request retention agreements. A retention agreement benefits both the company and the executive, but it is important to understand when this type of contract should be used.

The most common time to use a retention contract is when a company is the target for being acquired and it is crucial that the company not lose its key personnel in the months prior to closing the deal. Retention agreements are also commonly used when a key executive is being recruited by competitors. A CEO or other key executive should consider his/her value to his/her current employer and whether negotiating a retention contract would be more beneficial than accepting the new job offer.

When is the best time to use a retention agreement? Below are a few examples of when ensuring the key executive remains with the company justifies the use of a retention contract:

• Approaching Goal – if the company is approaching a critical milestone that could improve the sale
• IPO – if the business requires the executive to be part of its IPO process
• New Funding – when the company is seeking new or additional funding and the executive is necessary for the funding approval
• Significant Relationships – if the executive has developed significant relationships with key clients or other key employees, the loss of the executive could result in the loss of business and/or attrition of critical employees
• Business Products – when the executive is an inventor or innovator and plays a crucial role in the creation of the business’s products or maintenance thereof
• Reputation – if the executive’s departure would negatively impact the company’s reputation or good will

As a key executive, if one of the above situations applies to you and you have considered leaving your current employer, it may be wise to consider approaching the Board to explore the use of a retention contract. It is important to be prepared to discuss how your departure would negatively impact the company.