We want to reward our long-term employees with a portion of the sale proceeds, but we do not want to set up a formal option pool or phantom equity. How do we structure discretionary success bonuses that pay out only upon a successful transaction?

Question

Tyler Smith · Accepted Answer

Trying to reward your loyal team at the finish line without a clear plan can create legal entanglements and operational panic. If you promise vague payouts, employees may feel shortchanged or distracted during critical deal negotiations. Discretionary success bonuses, often structured as transaction bonuses, must be handled with precise timing and clear documentation.

First, avoid making informal verbal promises during your regular meetings. Instead, work with a transactional attorney to draft formal transaction bonus agreements for key team members who are critical to the exit runway. These agreements should specify that the bonus is contingent upon the closing of a change of control transaction. They should also require the employee to remain with the company in good standing through the closing date.

Second, keep these agreements confidential. Do not announce a broad success bonus pool to the entire company too early. Broad announcements cause employees to focus on their personal payouts rather than executing their daily Rocks. Keep the circle of knowledge limited to those on your leadership team who are actively helping prepare the business for sale.

For the rest of the staff, plan a discretionary post-closing bonus pool funded from your net proceeds. This allows you to write checks to loyal employees after the deal is done, without creating pre-sale legal obligations or performance distractions. This approach keeps your operations steady and protects your valuation.