Executive Retention Agreements

In the dynamic and often turbulent world of corporate America, periods of change—mergers, acquisitions, divestitures, or major restructuring—are fraught with uncertainty. During these critical junctures, a company’s most valuable and vulnerable asset is its key leadership talent. An Executive Retention Agreement is a specialized, high-stakes contract designed for a singular purpose: to incentivize and secure the continued service of essential executives through a period of transition. It is a strategic tool used by savvy companies to ensure stability and a critical instrument of leverage for the executive whose knowledge and leadership are indispensable. At Mailly Law, we possess deep expertise in structuring and negotiating these agreements from both sides of the table, ensuring the terms are not only compelling but also strategically aligned with the goals of our client, whether it is the corporation seeking continuity or the executive seeking fair compensation for their pivotal role.

A retention agreement is fundamentally different from a standard employment contract. It is a direct acknowledgment by the company that an executive’s departure during a specific period would cause significant harm to the business. The stakes are incredibly high. For the company, a botched retention strategy can lead to an exodus of talent, a loss of institutional knowledge, a decline in morale, and a failed M&A integration, ultimately destroying shareholder value. For the executive, this is a moment of maximum leverage. The right retention agreement provides significant financial reward, career security in an uncertain environment, and a clear definition of one’s role in the new or restructured organization. A poorly negotiated agreement, however, can leave an executive with a subpar bonus, unclear future prospects, and no protection if the new management decides to “clean house” after the transition is complete.

Mailly Law provides sophisticated counsel to executives and corporate boards in the delicate art of the retention negotiation. Our process is meticulous and designed to protect and maximize our client’s position.

For the Executive Client:

When a company presents you with a retention agreement, it is an admission of your value. Our role is to ensure that value is fully and fairly reflected in the contract.

• Analyzing the Financial Offer: We benchmark the proposed retention bonus against industry standards for similar transactions and roles. We negotiate not just the amount, but the structure—is it a lump sum, or paid in installments? We advocate for payment structures that protect you, such as a significant portion paid upon closing of a transaction and the remainder at the end of the retention period.
• Defining the Retention Period and Triggers: We ensure the retention period is clearly defined and that your obligations are reasonable. Critically, we negotiate the triggers for payment. What happens if you are terminated “Without Cause” or resign for “Good Reason” (e.g., a demotion or salary cut) before the end of the retention period? We fight for provisions that guarantee you receive the full, or at least a prorated, retention bonus in these scenarios.
• Negotiating Equity Treatment: The transition period often puts your unvested equity at risk. A core part of our negotiation is securing the accelerated vesting of stock options and RSUs. We argue for “double-trigger” acceleration, ensuring that if you are terminated without cause following the change in control, your equity vests immediately. This prevents the acquiring company from terminating you just to reclaim your unvested shares.
• Integrating with Existing Agreements: A retention agreement does not exist in a vacuum. It must work in harmony with your existing employment and severance agreements. We conduct a thorough review to ensure the new agreement enhances, rather than supersedes, your existing protections.

For the Corporate Client:

When a company needs to secure its leadership team, the retention agreements must be compelling, enforceable, and strategically sound.

• Strategic Design: We work with boards and compensation committees to identify key personnel and design a tiered retention program that is both cost-effective and highly motivating.
• Clear and Enforceable Terms: We draft agreements with unambiguous terms to avoid future disputes. This includes defining the exact conditions of the retention period, the payout metrics, and the consequences of an executive’s early departure.
• Aligning Incentives: We structure the agreements to align the interests of the executives with the goals of the transition, ensuring they are motivated not just to stay, but to actively contribute to a successful outcome.

An Executive Retention Agreement is a high-stakes negotiation that occurs at a company’s most pivotal moment. It requires a unique blend of corporate law expertise, compensation knowledge, and strategic acumen. Mailly Law provides that blend, ensuring our clients emerge from periods of uncertainty with their value recognized and their futures secure.