The buyer is demanding that our key leadership team signs long-term employment agreements, but they want us to fund their retention bonuses out of our final purchase price. How do we structure these retention pools so they are treated as buyer transaction costs rather than a reduction of our enterprise value?

Question

Tyler Smith · Accepted Answer

Buyers frequently try to shift the cost of keeping your key leadership team post-close onto your shoulders by deducting retention bonuses from the enterprise value. You must fight this structure. The people occupying the critical seats on your Accountability Chart are the ones who will execute the buyer's growth plan. Their post-close integration work benefit the buyer, not you. Therefore, retention pools must be structured as buyer-funded transaction expenses, not deductions from your purchase price. To achieve this, negotiate a clear separation between the enterprise value of the business and the post-close compensation pool. Argue that your leadership team is already fully compensated for their historical contributions, and any additional retention bonuses are forward-looking incentives designed to secure future performance. Present your EOS training and institutionalized processes as proof that the business runs systematically, which reduces the buyer's risk. If the buyer still insists on your contribution, propose a shared risk structure. Agree to fund a small portion of the retention pool, but only if it is structured as a contingent payout tied directly to the achievement of the earnout targets. If those growth milestones are met, the buyer must reimburse your contribution in full. This keeps the cost of future growth aligned with the party who benefits from it.