*
A remain bonus agreement, additionally referred to as a retention bonus agreement, is a composed agreement in between a agency and a key employee come induce the employee to stay with the company. Knowledge the meaning and purpose of this form of bonus agreement is vital for both service owners and employees.

You are watching: Is a retention bonus the same as severance pay

A stay bonus commitment is a contract in between a firm and one employee stating that the employee will not leave the company for a specified duration of time ~ a details triggering event (for example, the sale of the company). If the employee continues working for the company after the end of the mentioned time period, the employee will get a bonus, which may rise the longer the employee remains with the company, depending upon the regards to the agreement. A firm may choose to market a continue to be bonus instead of a salary rise if it does not have the funds required to maintain a irreversible salary increase. In some ways, a remain bonus agreement is the opposite of a severance agreement, which gives a payout to an employee who agrees to leaving the agency on great terms.

This kind of agreement is often used throughout a transition period to give crucial employees an incentive to stay with the company. As soon as a firm goes through a period of change, employees often start in search of other employment quite than wait to see if the agency will endure the shift or if their project will be eliminated. Part common species of shift periods that prompt the use of a remain bonus agreement include the fatality of one owner; a large project; a major period that production; the sale, merger, or shift of the company to the following generation that the family; the relocation the the business’s headquarters; the outsourcing of manufacturing; and a readjust in the primary business systems (software). The continue to be bonus deserve to encourage crucial employees to continue to be with the firm so the business can efficiently weather the shift period.

Stay bonus agreements administer the adhering to benefits:

Smooth transition. Retaining crucial employees throughout a time of shift provides continually in an important company functions, prevents disruption of solutions or manufacturing, and secures cash circulation for the business. In addition, there is no the an essential employees who recognize the business’s operations, the company’s management may not have the know-how and skills to continue its operations.Retention of vital personnel. that is critical to keep vital employees top top board v the shift so those employee can proceed to include value come the company after the transition.Preservation and also continuity of customer relationships. Generally, vital employees have solid relationships v a business’s customers. Client are more likely to stay loyal come a firm that maintain the vital employees with whom they have well-established relationships. Continue to be bonus agreements assist prevent customers from leave a organization in donate of that is competitors. Continuity of a business’s vital employees may also help retain its investors’ support throughout a transition.Improved morale. supplying a continue to be bonus to crucial employees will make them feeling appreciated, which in turn leads to permanent retention and also improved productivity.

When a company is drafting a remain bonus agreement, the should take into consideration how it wants the bonus to work for the company, the amount of the bonus, the size of time required for one employee to earn the bonus, and also which employees have to be available the bonus. Bonuses are regularly calculated as a percentage of an employee’s base pay (typically 10–25 percent), despite some companies tie bonuses to an employee’s power or size of time v the company. If the goal is to save the employee indigenous seeking employment through a competitor, the competitors’ salaries need to be considered. However, if the function of the remain bonus commitment is to maintain the employee because that a large project, climate the size of time of the project and also extra hrs of work-related expected need to be factored in. The bonus have the right to be paid out in a lump amount or end a period of time, commonly at the finish of the agreed-upon service. An option of the employee to whom the bonuses are readily available depends top top the distinct circumstances of every business, however businesses commonly offer a stay bonus to employee who room the many knowledgeable around the company’s trade secrets, have solid customer relationships, and add unique value to the company. The length of extr service forced for an employee to knife the bonus likewise depends on the demands of the company.

While stay bonuses are frequently used by large companies, smaller household businesses may likewise use stay bonus agreements as soon as the company owner plan to happen the business down to the next generation and also wants to retain key employees with crucial customer relationships and also experience.

See more: How Many Milliliters In A Microliter To Milliliter, Microliter To Milliliters

If you think a remain bonus commitment would be advantageous to prepare your company for meant or possible future changes, our team that lawyers can aid you produce one that complements your business succession plan. Speak to us this day to set up a conference for this or any type of of your business’s legal needs.