We want to ensure our core leadership team does not walk away or lose focus when they find out we are selling. How do we design retention incentives or stay bonuses on our exit runway without giving away actual equity in the company?

Question

Tyler Smith · Accepted Answer

Keeping your leadership team focused and aligned during a transaction is critical to preserving your valuation. You do not need to give away equity to achieve this alignment. Instead, you can design a structured phantom stock plan or a cash-based stay bonus.

A stay bonus should be structured around two key milestones: staying through the close of the transaction and staying through the transition period. For example, you can offer a bonus equal to a percentage of their annual salary, with half paid at closing and the remaining half paid six to twelve months after closing, provided they hit their transitional targets.

Tie these incentives directly to the successful completion of their Rocks and the maintenance of key metrics on their Scorecard. This keeps their focus on daily operations rather than the distractions of the deal. It also reassures the buyer that the leadership team is incentivized to ensure a smooth transition.

Introduce this incentive program only when the transaction becomes highly probable, typically around the signing of the Letter of Intent. Clearly explain how the program works and how it protects their careers. By aligning their financial interests with a successful transition, you turn potential resistance into active cooperation.