Meaning
Retention strategies provide financial rewards to central personnel to encourage them to stay with an organization for a specific period after a merger. This post close retention incentive targets the knowledge and relationships that the founder holds. It provides a link between the excitement of the sale and the routine of the new corporate structure.
Motivation Strategy
Cash bonuses or additional equity grants are the most common forms of these payments. The post close retention incentive provides a reason for the leader to solve integration problems. This helps prevent immediate retirement.
Payment Structure
Amounts are often paid out in stages, such as at the six month and one year anniversaries of the closing. Some plans include an earn out component where the final payout depends on the unit meeting profit targets. This structure keeps the founder focused on the bottom line during the first year of the new ownership.
Success Factor
The effectiveness of the plan depends on the size of the reward compared to the founder’s existing wealth. If the person has already made millions from the sale, a small bonus will not influence their behavior. The incentive must be large enough to justify the attention and energy required to stay in the role.
