What is a stay bonus?
Stay bonuses, also called retention bonuses are contracts between your company, the buyer and key employees. When a buyer is looking at your business they will want to be comfortable with your 2nd level of management so when you walk out of the closing, the buyer can rely on the key employees of the company to keep business running smoothly without you. In some ways, a stay bonus agreement is the opposite of a severance agreement, which provides a payout to an employee who agrees to leave the company on good terms.
Why is it important to you?
This type of agreement is used to ensure key employees stay with the company during a time of change when they will be evaluating their career options. It is in your interest to help them see their job is secure and the company will continue to be an employer of choice. The stay bonus is important to keep these key employees on board through the initial transition period to support you up to the closing and the new buyer for the first six to 12 months post close at a minimum. If you lose key employees pre-close it will negatively impact the value of the business and could cause the buyer to walk away.
How Sell Side Quarterbacks helps you navigate stay bonuses
Sell Side Quarterbacks will assist you in identifying key employees from a buyer's perspective, when to approach key employees with the agreement and how to position the sale of the company in the most positive light. The typical stay bonus agreement will pay part of the bonus within a week after the sale has been finalized and the remainder no later than the 1st anniversary of the sale. We will work with your transaction attorney to draft an agreement that reflects your values and continues to maintains confidentiality.
As the benefit of retaining key employees is shared between the seller and buyer, the payment of the bonus will also be shared. This is a point to be agreed in negotiating the definitive sale agreement.