Don’t Go—Just Yet. Using Retention Agreements to Retain Key Employees in Changing Times

When an employer contemplates an acquisition or merger, or a special project, it often wants to be sure that it can keep certain employees either during or after the corporate transaction or event. To incentivize employees to stay with the employer, retention agreements provide retention bonus pay, enhanced severance, equity (including stock options or acceleration of such options), or a combination of these types of compensation and benefits.

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• Retention Agreement
  Evaluate all pertinent provisions of a retention agreement which provide generally that the employee is eligible for an incentive bonus (as identified in the agreement) if they are continuously employed with the employer through the retention date or should the employee’s employment be terminated without cause before that date. 
• Retention Bonus and Change in Control Agreement
  See how retention bonuses can incentivize an employee to remain with the employer by showing the employee that the employer intends to continue the employment relationship even if there is change in leadership or business strategy or, if the employee is not retained throughout, at least providing a severance benefit. Since these agreements tend to provide compensation in future years, they must be drafted to comply with or be exempt from the requirements of I.R.C. § 409A to avoid adverse tax consequences.

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