The buyer is making our deal contingent on our three key department heads signing restrictive, long-term employment agreements, but we are worried these executives will resist or demand a massive cut of the deal proceeds. How do we align their incentives without disrupting our operations?

Question

Tyler Smith · Accepted Answer

Your key department heads hold the keys to the buyer's transition success. If the buyer demands they sign restrictive new employment agreements post-close, you cannot simply spring this on them at the eleventh hour. Doing so risks operational sabotage, talent flight, or demands for extortionate payouts that derail the entire transaction. To manage this risk, you must align their incentives early. First, use your V/TO to ensure your leadership team is fully aware of the company's long-term exit strategy. Transparency builds trust. Next, structure a formal stay bonus or phantom stock plan that rewards these key executives for remaining with the business through the transaction and the transition period. This bonus should be paid out in stages, such as fifty percent at close and fifty percent after twelve months of service with the new owner. To protect your own proceeds, negotiate with the buyer to have a portion of these stay bonuses funded by the transaction itself as a deal expense, rather than coming entirely out of your pocket. Finally, evaluate these executives using the GWC framework (Get It, Want It, Capacity to Do It) for their potential post-exit roles. If they do not want to work for a corporate buyer, you must identify this early during your quarterly planning and begin transitioning their responsibilities to other team members, reducing the buyer's key-person concern before you ever go to market.