10 Oct 2022

Executive Retention Packages: Negotiate Terms That Work For You

Executive retention packages serve the purpose of keeping you in a position that benefits you. As an executive, it’s likely that a lucrative job offer might cross your desk. Alternatively, your employer may agree to a merger or acquisition. 

When the new company owners want to keep key executives in place, they may offer a retention agreement. Whether the employer initiates the discussion or you do, it’s a good idea to understand what these agreements cover and how to negotiate terms that protect your assets and interests. 

The Purpose of Executive Retention Agreements

Before you make a decision to accept a new job offer or stay in your position in an M&A situation, assess your value. Does your experience justify a retention package? Is it a “win-win” situation for you to stay? 

Here are a few situations in which a company might consider executive retention packages to keep key people in place. 

  • The company plans to seek new funding.
  • You have relationships with key clients the company does not want to lose. 
  • The company is approaching a crucial milestone to be followed by a liquidity event.
  • You are an inventor or innovator, key to the main product’s creation, development, or maintenance. 
  • The company has plans for an IPO or requires an executive lockup for the IPO process.
  • You have close relationships with essential performers and managers, and your departure may lead to attrition. 
  • Your notoriety means your company may lose goodwill with customers or the industry community.

Of course, these are merely a few examples of situations that might call for a retention agreement. When you find yourself in such a situation, you may wish to approach the CEO or Board to notify them of your plans to leave. However, you can accompany this indication with an invitation to negotiate a retention package.  

Proposing Executive Retention Packages

As you begin the discussion of your retention agreement, it’s a good idea to discuss the following. 

  • Cover the value that you bring to the company currently and in the future. 
  • Highlight how those values would be lost, leaving a gap until the company is able to find a capable replacement. 
  • Ascribe a dollar value, to the extent that it is possible, to your departure. 
  • Show your willingness to reduce any negative impact through a retention package. 
  • State the terms you wish to establish and show how the cost is smaller than what the company gains with you in place. 

If the company’s needs are short-term, you may wish to defer your start time at a new company. Alternatively, you may be able to begin a new position while working as a part-time consultant through your retention agreement. 

Negotiations for Key Terms

When it comes to executive retention packages, the key purpose is to show your value to the company. When you propose your agreement, it’s a good idea to frame it as a small portion of the benefit you bring to the company through the package. 

Let’s look at an example. 

  • The company is on the cusp of a milestone, a key condition to closing $10 million within three months. 
  • Your role is essential, and your departure means it would take over a year to recover that loss. 
  • If you seek a package valued at $700,000, to be paid upon that milestone, the company can visualize the payback.

Then, the company may agree to pay the compensation of your package in order to keep you in place during a critical point. 

What Terms Should You Consider?

As you begin to negotiate your retention package, a good start is to revisit issues from your initial employment agreement negotiations. This is especially true if you did not have a good bargaining position or executive representation at the time. 

Now, you enter negotiations having proven yourself. This means you are in a much stronger position, and your employer may concede to some of your original proposals. 

However, you don’t need to stop there. Your knowledge as an executive gives you key insights into the prospects and positions of the company. Moreover, you know the value your continued employment brings to your employer. 

Here are some of the key terms in executive retention packages. 

  • Signing bonus and raise
  • Revisions to the level of your bonus
  • Incentive equity 
  • Revisions to severance agreements that allow you a single trigger if the terms are not met

Representation & Guidance Throughout Negotiations

When you achieve a certain level of success in a position, and the company relies on you, it’s wise to consider executive retention packages. If a new job calls out to you, it’s an opportunity to reevaluate your position, agreements, and more. 

Before you leave, see whether there’s a chance to make it a win-win situation for you and the company. If you decide to leave, a brief retention package may cause no inconvenience at all to your new employer. 

To learn more about your position, schedule a consultation with an executive employment lawyer Houston trusts. At The Craighead Law Firm, we provide guidance to executives across a range of industries. See how our team can serve you today.