Executive Retention Bonus
(Letter Agreement)

This template is an agreement that provides a retention bonus for an employee. This template includes practical guidance, drafting notes, and alternate and optional clauses. Retention agreements (also retention bonuses or stay bonuses) frequently are used to incentivize an employee, often an executive employee, to remain employed by the employer to the date of and often past an event. The event often is a corporate event, like a merger, acquisition or spinoff but. Occasionally the retention bonus is provided outside of a corporate event. This might be a corporate restructuring, or where the employer is experiencing financial problems that may adversely impact the employer as a going concern It may also involve a project in which the employee is key to the project's completion. In each case, the bonus is meant to incentivize the employee to remain in their employment position at least (and sometimes beyond) the culmination of the event. The retention bonus agreement should specify how long the employee has to stay with the company to receive the bonus; otherwise it is forfeited. Retention bonuses typically are a percentage of the executive's base compensation (e.g. 10-50%, or greater for top executives). This agreement has not been drafted to comport with state law rules that may apply. This agreement is drafted to comport with the requirements of I.R.C. § 409A but can comport with the short-term deferral rule which avoids section 409A application. See Section 409A and Severance Arrangements — Short-Term Deferral Rule. For a listing of key content that discusses Section 409A, see Section 409A Resource Kit. For a listing of key content that discusses severance benefits, see Severance Benefits Resource Kit and Departing Employees Resource Kit. For a listing of key content that discusses employee benefits in the context of a corporate transaction, see Corporate Transactions EBEC Resource Kit. Also see Change-in-Control Severance Plan (Public Company). For a longer retention bonus suited to a change in control, see Retention Bonus and Change in Control Agreement. For another form of incentive payment, see Short-Term Incentive Cash Bonus Agreement. Also see Severance and Change-in-Control Agreement Liabilities in Corporate Transactions.