Letter of Retention Agreement are Key to Retain Efficient Employees

Shini Ramith

September 14, 2023 · 10 min read

Letter of Retention Agreement are Key to Retain Efficient Employees - TalentPoint

Companies that want to retain their most outstanding professionals resort to a retention agreement, with a substantial bonus. This typically occurs in the event of a merger or acquisition, although it can occur in other cases. In addition, such agreements can benefit both parties with good formulation and execution.

In this article, we explain what this type of agreement is and what the bonus granted in these cases consists of. Likewise, we share in detail an example of a general letter of retention so that you can modify it according to your case. Let us see:

1. Retention agreement and retention bonus meaning

2. Retention agreement from the perspective of the employer and the employee

3. Sample Retention Bonus Letter Agreement

4. The Talent Point, the ideal place to find a job

1. Retention agreement and retention bonus meaning

A key employee retention agreement allows this type of worker to receive a bonus and severance pay. Additionally, these agreements commonly include severance pay clauses as well as other benefits to retain an employee. As a result, in most cases, the worker agrees to stay with the company.

However, many times the employee does not consider a possible business reorganization that may affect their work. Below, we expand on the concept and characteristics of this type of contract.

1.1 What is an employee retention agreement?

A retention agreement is a contract between the employer and the worker for the latter to stay with the company longer. Typically, this occurs when a company wants to retain an outstanding employee when there is a merger or acquisition. These agreements, when well formulated and executed, can benefit both parties.

Thus, the company retains its talent and the employee receives benefits such as a retention award, bonuses, a promotion, or job security. Additionally, for the satisfaction of everyone, both can negotiate the clauses of the agreement.

1.2 What is a retention bonus?

To incentivize an employee to stay in the business, companies often use the right tools. For example, they use a very effective element in these cases, the stay bonus agreement or retention bonus. However, this bonus is more common when a company is in a transition process.

On the other hand, the company can pay this bonus as a lump sum or in parts over a certain period. The organization can establish it in a letter of retention, which contains the details of the agreement. In addition, this letter also determines how long the employee must remain to receive the bonus.

These bonuses consist of a considerable amount, usually between 10% and 25% of your base salary. However, this amount can be much higher.

2. Retention agreement from the perspective of the employer and the employee

As we mentioned earlier, a key employee retention agreement can benefit the employer and the employee alike. However, both parties must consider the different aspects involved in these agreements. Therefore, we offer you the perspective that workers and employers should consider.

2.1 Retention agreement from the perspective of the employee

Concerning the employee, a letter of retention is not the same in all cases. Therefore, employees must negotiate with the company the terms of the contract. In this way, you can get all the benefits that the company can offer in this deal.

One of the details included in the retention letter is the payment of the bonus. Thus, you can agree that you will receive payments in installments throughout your employment. Additionally, this contract can protect the worker against unjustified dismissal or due to a change of management.

In this case, the agreement may establish compensation for the employee if he is terminated by his current employer or whoever succeeds him. Additionally, this compensation may consist of the payment of the entire retention benefit. In the same way, the employee can also negotiate the proration of the payment in case of death or disability that occurred before the end of the agreement.

However, you should consider carefully whether you should sign the deal they offer you, as you will need to stay on bonus. Also, consider both the benefits and the downside of staying with the company for that long. Therefore, you must read the agreement carefully and negotiate appropriately to get the best out of the employer.

2.2 Letter of retention from the perspective of the employer

As an employer, you should know that this type of arrangement will allow you to have a smooth transition during and after an acquisition. Therefore, you must offer the right incentives for this team of employees to remain during this process or beyond. Therefore, you should carefully consider the aspects of this agreement.

Some of these aspects are the following:

Must be clear about the terms of the letter of retention and the bonus that your company offers the worker. This will prevent your company from inappropriate spending in the event of excessive bonuses.
Also, in line with the previous point, you must make a fair and serious offer. Otherwise, if the employee you want to retain does not think it is fair, you can lose him. Therefore, there must be a balance between what the employee wants and what you can offer.
Likewise, be sure to specify every detail of the agreement, so you can refer to the sample retention letter below.
Another point to consider is what role the worker will play and whether there will be any changes over time.
Also, you must define how long the contract will remain active and what will happen if the employee leaves before the end. This includes the retention bonus payback.
It is also important that you hire an attorney who can help you with employment law and settlement issues.

In short, you must clarify each aspect of the retention agreement so that there are no unclarified aspects and avoid conflicts.

3. Sample Retention Bonus Letter Agreement

Below, you can see a retention letter sample which we will divide into parts for better understanding and detail.

3.1 Letter of retention header

The retention agreement header must contain the following elements:

The date of the agreement

employee name

Employee Address

Dear (employee name):

This retention bonus agreement defines each aspect of your continued employment at (Company Name). The Company authorizes this extension of employment after the merger with/acquisition of (name of the acquired or merging company). In addition, the closing date in this document is the specific date of the merger/acquisition.

3.2 Characteristics of the letter of retention

Also, you must include the details of it, so you must ignore the title of this section and give continuity to the letter.

3.2.1 Duration

Each of the details of this agreement will begin to take effect as of the closing date. In addition, it will end (here you must specify the duration of the contract), or when your employment ends.

3.2.2 Title

For the terms of this agreement, you will have the title of (insert the title of the employee here), to perform it according to the description of this agreement. In addition, you must report to the (position title of the immediate superior).

3.2.3 Compensation

The salary you will receive will be (amount), which will be paid according to the normal payroll methods of the company (company name). Furthermore, you will be able to obtain other benefits and changes contemplated in the labor law and those agreed with the company. These may include:

Salary adjustments
Merit Raises
Salary reductions, among other changes.

3.2.4 Retention Bonus

The election for the retention bonus will be subject to the terms of this contract and will be (indicate the amount). You will receive the payment of the first half of said bonus if you continue to be employed by the company (company name) in the first year of the contract. In addition, you will receive the second part at the end of the contract between you and the company (company name).

Said payments will be made according to the normal payroll cycle at the times determined above.

Note: this is just an example of how the payments could be, as these may differ as agreed by both parties.

3.2.5 Termination of the contract

If (employee name) terminates employment with (company) before the end of the contract, they will receive the retention bonus amount up to that time. In addition, payment will be made as established in the previous section, without receiving payment for incomplete periods.

That is, if you work 1 year and 4 months, you will only receive the payment for the first year, not for the 4 months.

On the other hand, if (name of the employee) resigns unjustifiably before the end of this contract, he must pay the retention bonus payback. This must pay the part of the bond corresponding to the company (name of the company) within the following (number of days).

If (name of the employee) is dismissed for cause before the end of this contract, he must also repay the retention bonus obtained up to that time.

For purposes of this contract, “cause” means the following:

Failure to comply with the duties established with the company (name of the company).
Or, deliberate illegal, or serious conduct.

For purposes of this agreement, unjustifiably means the following:

The company (company name) does not allow you to continue in your employment due to a lack of fiscal solidity.
The company (company name) discriminates against you.

3.3 Legal aspects

The legal aspects that should be established in the letter of retention should be the following:

3.3.1 Law governing the contract

This agreement in its entirety shall be governed by the specific laws of (country or region). Therefore, all interpretations and execution must adhere to these laws.

3.3.2 Modification

This agreement and each of its provisions may not be unilaterally modified, altered, or amended. Therefore, any of these changes can only be possible by an agreement between the interested parties.

3.3.3 Arbitration

You irrevocably agree that any claim or dispute relating to this agreement must be submitted to arbitration. In addition, this arbitration is the only remedy that will serve for the resolution of any dispute during the term of this agreement. Therefore, by signing the contract, both you and the company (company name) consider this arbitration binding.

This arbitration will be administered by (name of the official arbitration institution) under the established rules. Additionally, the company (company name) will pay the arbitration expenses and each of the parties will pay their individual expenses.

3.3.4 End of retention letter

If you accept the terms of the agreement described above, please place your signature in the appropriate space:

(Printed Employee Name)

Signature:

Date:

As you may have seen, this example can be used for different types of companies, such as restaurant manager bonus templates, employees, and even executives.

4. The Talent Point, the ideal place to find a job

A retention agreement allows an employee to stay with a company that is in the process of being merged or acquired. This can benefit the stakeholders, the employer keeps the talent and the employee receives a bonus and other benefits. However, they must establish an adequate contract that avoids conflicts and that serves them both.

Additionally, the employee can choose to accept the agreement, if it suits him, or to change jobs. In this case, or if you are looking for a work for the first time, at The Talent Point you can find a wide variety of jobs. On our website, you can find the best companies in the Middle East, where you can find the job you want so much.