The buyer wants to tie a significant portion of our purchase price to the retention of our leadership team post-close, but some of our key directors do not have equity. How do we use Phantom Stock or Stay Bonuses to align their incentives with our exit goals?

Question

Tyler Smith · Accepted Answer

If a buyer's valuation relies on your management team staying in place, you must align your team's personal financial goals with the success of the transaction. Without incentives, your key directors may feel anxious about the transition and look for other jobs, which would jeopardize the deal.

To solve this, implement a phantom stock plan or a structured stay bonus pool. Phantom stock mimics actual stock ownership, paying out a cash bonus equivalent to the appreciation of the company's value upon a change of control. This aligns your team with your goal of maximizing enterprise value.

Alternatively, design a stay bonus agreement. This structure pays out key leaders in installments, such as fifty percent at close and fifty percent twelve months later, provided they remain with the company. Ensure these agreements are tied to their roles on your Accountability Chart, proving they GWC™ their positions and are committed to the integration phase.

Keep your communication open and transparent. Use your EOS® framework to discuss the transition plan during leadership sessions, reassuring your team that the transaction brings new resources and opportunities. Providing clear financial upside ensures your key players remain focused on their quarterly Rocks and committed to the long-term success of the business.