“How should I ask for a retention bonus?”

Question: The company I work for is going through a major transformation programme. I was facing potential redundancy but after an interview I have secured a role in the new structure. The new position is of a senior level and higher salary. 

I’ve been waiting for five months for the company to confirm my start date and today I was told I will be able to start the new role in January, 2014 [eight months from today]. 

Is it appropriate to ask for a retention bonus? How do I go about that?

London, United Kingdom

Answer: Dear Magdalene: If you are being asked to stay on board in your present position for eight months, during a rather “risky” company transformation, based only on a spoken (that is, not written) promise of a new position, that may or may not come to fruition, it is entirely proper and appropriate to propose a retention bonus or agreement. 

That said, retention bonuses are a bit “tricky” to navigate. They represent (a) delicate assessments of risk, and (b) sophisticated evaluations of perceived value. Nonetheless, as “the world belongs to the bold,” there is no good reason to refrain from attempting to reduce employment and career risk.   

As an initial matter, employees should always bear in mind that no one can, and no one will, take care of them at work, or protect them and their workplace rights, better than they can, or will, themselves. However, when things are “delicate,” “sophisticated” and “risky,” careful adherence and continued mindfulness to analysis are especially important. Here is my analysis:         

1. First, let’s define what we mean by “retention bonus.” It is a (a) business transaction, (b) between employer and employee, (c) in which the employee is promised a payment or something of value, (d) in return for the employee accepting an identified risk. Consider the classic scenario in which retention bonuses are offered: when two companies are negotiating to possibly merge, and as a result of the proposed merger there would be (a) two General Counsels, (b) two Chief Marketing Officers, and (c) two Directors of Sales, just as examples. After any such merger, only one of each title will be needed, and the ones not chosen to remain will then be asked to leave.

 In this situation, it is in the employer’s interests to have the time and unfettered option to decide who to retain, and who to lay off. But, is it in the employees’ interests to stay put, and not seek other employment elsewhere? Of course not. 

The idea of a “retention bonus” is “If the employee accepts a risk, and does not look for other jobs while the employer decides whether to keep the employee, the employee will be paid something for accepting that risk.” 

If the employees are not offered a retention bonus (or other arrangement), then (a) BOTH Chief Marketing Officers might find new jobs, (b) BOTH General Counsels might find new jobs, and (c) BOTH Directors of Sales might find new jobs, to the very substantial detriment of the merged company. 

Another workplace circumstance in which a retention bonus or arrangement might be suggested is when the employer has a major campaign, deal or undertaking scheduled, and wants to ensure that the employees who may be critical to the campaign’s, the deal’s or the undertaking’s success remain with the company until the matter has been completed in all respects. Because this might conflict with the employees’ plans to take a new position, relocate to a different city, or even retire, it may well be worth it for the employer to offer an inducement to those people to remain. 

2. Second, since a “retention bonus” is a kind of business transaction, we propose it as we would propose any business transaction: by laying out what would be good about the transaction for both “sides.” So many of my clients come to me and say, in one way or another: “How can I get what I want, need or deserve?” My answer is always this: “By offering to someone else, who could give you those things, what they want, need or deserve.” That is to say, negotiation is a give-and-take, and in “give and take” “give” comes first.  

Let me try to illustrate by use of an analogy: If I was to say to you, “May I have $1,000,” is it likely you would give it to me? No, of course not. But if I was to say to you, “I hear you are shopping for a 20-foot boat. I will give you my 20-foot boat, which is in great shape, if you give me $1,000,” it is much more likely I will get the $1,000 I “want, need and deserve.” You might say this is nothing more than “Sales 101,” and I would say, “Yes, and keep that in mind.” 

The lesson is this: In proposing a retention bonus or agreement to your employer, you should first emphasize (a) why it would be in the interests of the employer, and, then (b) what benefit will come about to the employer if it offers the retention bonus.  Remember that saying to your employer, right off the bat, “I want, I need or I deserve” is usually demotivating to the employer, self-defeating for the employee, and a non-starter for the proposed transaction.   

3. Third, since a “retention bonus” is a transaction in the context of the employment relation, the way you propose a “retention bonus” must take into account the various “customs, expectations and usual limits” of that relation. If the usual employee said to the usual manager “Give me a 10% bonus to stay, or I will leave tomorrow,” there is a good chance he or she would be told “Good-bye.” However, if the usual large corporate customer of a small company said, “Give us a 10% reduction in price, or we will have no choice but to buy our things from a different supplier,” the answer would probably not be a simple “Good-bye.” That is because different “customs, expectations and usual limits” – and leverage – exist in each relation. 

So, let’s look at some common aspects of the usual employment relation: 

(a) Most employees are “at will” employees, which means that either the employee or the employer may end the employment relation at any time;

(b) Most employees need the income and benefits of employment, and do not feel comfortable simply leaving one job without having another job lined up;

(c) Most employers feel like they can do without a certain employee than most employees feel they can do without a job;  

(d) Most employees are not comfortable with negotiating for themselves with their bosses; and

(e) It is undeniable that some employees do, in fact, have an extraordinary degree of leverage in that they represent extraordinary value to their employer, either in a general way, or for a specific reason or time period. 

These aspects of the employment relation suggest that each employee must (a) be prudent, (b) be proactive, and (c) in going forward with a proposed transaction at work – including a retention bonus or arrangements – carefully evaluate his or her own “special value,” what others commonly refer to as “leverage.”    

The lesson is this: In proposing a retention bonus or agreement to your employer, you should consider, observe and honor your particular need for job security and what that means to you, and, at the same time, the degree of leverage you may have in your particular situation. 

4. Understand that the usual retention arrangement provides two things for an employee: (i) a certain payment to take the risk of retention, and (ii) specified severance if the risk ends up costing him or her the job. A few years back, I represented two executives who worked for a New Jersey-based insurance company that was being purchased by a Texas-based insurance company. They were in the same position as were the General Counsels, Chief Marketing Officers, and Directors of Sales described in Section 1, above.  

They were each offered (a) a payment of $100,000 to remain with the company for up to two years, payable $50,000 when they signed the agreement, and $50,000 after two years, and, in addition, (b) if they were let go at any time within two years of the merger of the two companies, they would each be paid a full year of compensation (including salary and bonus) and benefits as severance.  

After I assisted them in their negotiations, they were additionally offered (a) accelerated vesting of all stock and stock options, (b) an assurance that their severance would be no less favorable in all respects to anyone else in their positions who was laid off within two years of the merger, (c) guarantee of all payments even if they became disabled, or died, or resigned for “good reasons” (which were defined), and (d) reimbursement of their legal expense of negotiation.  

5. I always counsel that any request or proposal made in the employment relation should be presented with “The Three R’s,” namely:  

(a) Respectfully Presented: No matter what you are suggesting, proposing or offering, in employment relations respect in communications is paramount, as it reflects the employee’s understanding and acceptance of the relative positions of strength, the employee’s duty of loyalty, and the respect to be expected to be displayed to one’s managers. I never heard of an employee being terminated, or otherwise harmed, for being respectful. By the way, I would suggest that the word “arrangement” is often viewed as more respectful than is “bonus” by many managers.  

Might I suggest that using the word “bonus” in the phrase “retention bonus” is not the best way to characterize it. Instead, might I suggest that you propose a “retention arrangement,” a “retention agreement, or a “stay arrangement.” “Bonus” can, right from the beginning, put a chill on discussions. 

(b) Reasonable in Amount: In order to be taken seriously from the beginning, you need to assess what might be viewed as “reasonable” in amount for your request. If you earn $45,000 a year, may I suggest that a request for $400,000 will make your manager simply shake her or his head in disbelief, and simply not take you seriously.  

What, then, is reasonable to propose? It is an amount (or a valued item) that makes sense in light of your own circumstances. (i) If you believe your remaining on board, and then losing your job, could result in your having to seek work for 6 months, then perhaps the value of six months of salary and benefits would be “reasonable.” (ii) If you have available to you a particular job, which promises a particular salary and sign-on bonus, and perhaps even a step-up for your career, then perhaps a proposal of one year of compensation is more suitable. (iii) Consider, too, non-monetary items such as (a) accelerated vesting of equity, (b) tuition for a career change, (c) a “bridge to retirement-eligible status,” or even (d) a very healthy severance package, inclusive of tuition for an executive MBA program, if that is of value to you. 

Note well: As noted above, the usual “retention” arrangement provides for (i) a payment for taking a risk, and (ii) specified severance if the job is later lost.   

(c) Presented with a Compelling Rationale: A rationale is the reason that supports your  request or proposal. The rationale for a retention bonus or agreement is usually simple: (i) The company has asked me to stay on, and I want to do so, but (ii) my family and other financial obligations require that I not participate in risky activities. So, (iii) if the company eliminates the risk involved, (iv) I would be happy to ensure the company of my continued presence, efforts and loyalty. 

Remember that there is nothing whatsoever wrong with being prudent, careful and planning. That’s all a proposal for a retention bonus is. And, remember, too, that “I want, I need, and I deserve” is not compelling, but just the opposite; it is demotivating to employers.   

6. When it comes to presenting a retention bonus or arrangement, this is what I recommend: It is always my preference that important communications be put into writing, so that precisely what was said, and how it was said, and to whom it was said, is crystal clear. 

Regarding retention agreements, putting your ideas into writing helps guard against the possible perception – or even mischaracterization – by others that this is an attempt at “highway robbery,” so to speak. By that I mean it is important not to give the impression of “Pay me, or I will leave you when you need me most.” 

Rather, by putting your thoughts into writing can better ensure that you include (a) acknowledgement of the validity of the  mutual concerns, (b) suggested resolution of those concerns by means of the “business transaction” commonly called a “retention arrangement,” and (c) your steadfast desire to serve your employer’s needs, (d) your openness and flexibility as to how those needs are achieved, and (e) your availability to meet to discuss the matter.  

If you are not comfortable with writing, or do not feel confident that you understand “What to Say, and How to Say It,”™ we offer a Model Letter to Propose a Retention Bonus or Arrangement. You can obtain a copy of this Model Letter, to adapt to include your own facts, events, circumstances, and goals, by simply clicking [here.]  

7. From what you have written, you do seem to be a candidate for requesting a retention bonus or arrangement. Magdalene, while I don’t know all of the facts and circumstances of your position, your industry, or your employer, from what you have written it seems to me that you may well be in a position to propose a retention bonus or arrangement:  

First, your employer is going through a transformation programme, which by itself suggests that you and your position might be eliminated, no matter what anyone has told you. In fact, it is even possible that you are being “held on the shelf” that is, lulled, until final decisions are made. Second, your employer has requested that you remain on board during this transformation, but is not willing to either discuss your new employment or its new terms, or put them into effect. Third, while the improved position and compensation do sound attractive, they are not guaranteed in any way. In fact, your continued employment is not guaranteed either. Fourth, you have been identified – and it has been communicated to you – as a person who the company wants to assume a senior role. Fifth, just as your employer must make plans for its future, so too must you.   

My suggestion is that you do, in fact, consider requesting a retention bonus or arrangement, but that you first “fold your parachute” – meaning first look into other possible positions in your industry –  just in case your request is turned down, or your “new position” does, in fact, fall through. 

Magdalene, I hope this is helpful. It is always important to both be aware of risk, but also take advantage of potential leverage. There is nothing whatsoever wrong with proposing a business transaction between employee and employer, just so long as it takes into account the employer’s perspective and needs, the delicate nature of the relation, and the realities of leverage available to you. 

Thanks for writing in from London, and say “Hi” to all of my friends and blog readers in that wonderful city by The Thames.€  

 My Best,
Al Sklover

P.S.: One of our most popular “Ultimate Packages” of forms, letters and checklists is entitled “Ultimate Non-Compete Package” consisting of six Model Letters/Memos for non-compete navigation and negotiation, as well as our 185-Point Non-Compete Guide and Checklist.” To obtain a complete set, just [click here.] “What to Say, and How to Say It.™” Delivered to Your Printer by Email – Instantly!

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