We need to lock in our four key department heads for the sale process, but we do not want to give away real equity. How do we structure retention incentives that a buyer will approve of?

Question

Tyler Smith · Accepted Answer

Key employee retention is one of the top concerns for buyers during due diligence. If your top operators leave immediately after a transaction, the value of the business plummets. To protect your deal, you must design retention incentives that keep your leadership team aligned and committed through the transition without diluting your equity. A buyer-approved stay bonus program is the most practical way to secure your team's loyalty. Use your exit runway to structure these incentives cleanly:

- Tie the retention payments to specific milestones, such as completing the transition period or hitting post-close performance targets.

- Ensure your key employees have the right GWC, meaning they get, want, and have the capacity to excel in their roles under new ownership.

- Work with your M&A advisor to structure the bonuses so they are paid out of the transaction proceeds, which buyers typically view as a standard transaction expense.

By structuring these incentives early, you give your leadership team a financial stake in a successful transaction. This alignment reduces key-person risk, reassures the buyer that the operational engine will remain intact, and protects your valuation when you go to market.