The sale of a company often entails a series of employee-related issues involving motivation and retention. The key is to ensure employees who are tasked with working on the sale process are incentivized to be supportive. It is also important that they be willing to remain with the company post-sale if desired by the buyer. As mentioned in our Deal Note® “Rewarding Senior Management”, we urge owners who are thinking about selling to consider these matters long before the sale process begins.
One of the most common ways to incentivize employees to stay and help out is through Retention Bonuses. There are a number of ways they can be structured, but in all cases, we advise our clients to carefully consider three issues:
- Which employees will need to work on the sale process?
- Will they be willing to fully commit to the sale process and modify their personal life to support the process (e.g., postpone vacations, work overtime, etc.)?
- Will they be willing to stay after the sale if requested by the buyer?
Clients frequently tell us “My employees have always been loyal, and we don’t need to provide financial rewards to gain their cooperation during a sale process.” However, in actual practice we often see the opposite, especially when employees realize that the owner is going to receive tens of millions of dollars and they are going to get nothing, and may even lose their jobs. We believe there is no substitute for financial incentives to encourage the desired behavior.
The incentive compensation relating to a sale can take several forms, but the key is to address the issue far in advance. The costs are relatively minor when done up-front. But as mentioned in Bruce Andrew’s Deal Note® “Agency Risk” in February 2022, these costs can be exponentially higher when left to deal with during the sale process.
Have a great day everyone,
Kevin Gould
Managing Director, Aerospace
