Our top salesperson generates thirty percent of our new revenue, and the buyer is discounting our multiple because of this key-man risk. How do we structure employment agreements and phantom equity to neutralize this risk and preserve our transaction value?

Question

Tyler Smith · Accepted Answer

A business that is highly dependent on one key employee is a risky bet for any buyer. If that salesperson leaves post-close, a massive chunk of your revenue could go with them. To protect your multiple, you must institutionalize this relationship and tie the employee's financial upside to the success of the transition.

First, use your Accountability Chart to transition the salesperson from a lone-wolf operator into a structured sales system. Document their sales process as a core company standard operating procedure. This shows the buyer that the sales methodology is owned by the business, not locked inside one person's head.

Second, structure a post-closing incentive package to secure their long-term commitment. Implement a phantom equity plan or a transaction bonus pool that vests over two to three years post-close. In the purchase agreement, negotiate to fund this bonus pool out of the transaction proceeds, but make the payouts contingent on both their continued employment and the retention of their key customer accounts.

Combine this incentive with a robust employment agreement containing reasonable non-compete and non-solicitation covenants. By showing the buyer a locked-in, highly incentivized key contributor who is fully aligned with the post-close transition, you turn a major risk into an asset. This structured approach reassures the buyer and preserves your premium multiple.