The buyer is requiring me to remain as CEO during a two-year earnout period, but they also want veto power over our budget and hiring decisions. How do we structure our operational governance to protect our earnout from their interference?

Question

Tyler Smith · Accepted Answer

If you are held accountable to earnout targets, you must retain the operational authority to hit them. Giving the buyer veto power over your budget and hiring decisions during an earnout period is a recipe for failure.

Structuring Operational Governance

To protect your payout, negotiate a clear division of authority in the purchase agreement. This agreement should define which decisions require mutual consent and which remain solely with you and your leadership team. You can use an [Accountability Chart](/qa/resolving-accountability-chart-seat-overlaps) to map out these boundaries.

Consider the following points:

• Unilateral Control: You should maintain unilateral control over day-to-day operations. This includes:
• Hiring and firing within your approved headcount.
• Marketing execution.
• Limited Buyer Veto Power: The buyer's veto power should be strictly limited to:
• Capital expenditures above a specific, negotiated threshold.
• Changes to the core business model.

Aligning Incentives and Safeguards

Establish a formal operating committee with representatives from both sides to handle high-level strategic decisions. This approach prevents the buyer from having unilateral veto power and helps ensure decisions are made collaboratively.

Crucially, the agreement should include a clause that automatically reduces your earnout targets if the buyer blocks a budgeted hire or operational investment. This mechanism keeps incentives aligned and discourages the buyer from interfering with your ability to achieve the agreed-upon metrics. This careful structuring of the earnout is key to [negotiating a cleaner earnout structure](/qa/negotiating-clean-earnout-metrics-vto).

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