Mailly Law November 2019

November 2019

714-384-6531 | www.maillylaw.com

How to Retain Employees Through a Buyout Maintaining Staff Value While Transitioning

When negotiations are open in the acquisition of a business, the staff is crucial to the company’s value. When a corporation is in buyout discussions, employees will begin to look at their options. The primary concern for employees when two companies merge is their job security. If you’re buying a company in the same industry, you already have a staff equipped to handle the day-to-day activities. Therefore, you will likely consolidate your resources to run the combined business while emphasizing the newly acquired brand in your marketing efforts. There are some key employees, though, who are essential to the company’s well-being, especially in light of a buyout. To incentivize employees to stay, you may offer a bonus structure revolving around their retention period. The retention period will vary from business to business but will usually be around six months to a year or more. Depending on the employee or the division, their bonus contract could differ as well. Take a VP of sales or sales manager, for example. The employee will likely be reluctant to accept any changes in their duties, especially if their pay is commission based. In this case, they would probably refuse any noncompete provision in their bonus contract should they decide to leave after their retention period. There are,

however, several options for a bonus when you want to retain an employee.

Keep in mind that employees will still have to pay any taxes associated with buying and selling the stock. While stock plans are a great way to retain employees, as they provide a means for employees to invest in their futures, stay bonuses are also prevalent. A stay bonus is merely receiving a benefit at a set time after the employee has completed the retention period. Typically, they will receive half of their stay bonus when the employee signs the contract and half after the retention period has passed. While these are great options, there are plenty of other methods to retain critical staff members after a buyout has gone through. To discuss your options, please reach out anytime.

One is a stock plan with either restricted stock or stock options. The employee would be granted stock options at a preset price, commonly referred to as a “grant price.” These shares will go through a vesting period before the employee can purchase them. A vesting period is how long an employee has to stay with you before they access their shares. When an employee’s stock has vested, they will be able to buy the shares at the pre- set price, or “strike price” or “exercise price”.

“While stock plans are a great way to retain employees, as they provide a means for employees to invest in their futures, stay bonuses are also prevalent.”

-Guy Mailly

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