What is Employee Retention Plan?
The Short Answer
Employee Retention Plan explained simply
An Employee Retention Plan is a formal strategy put in place to ensure that important employees stay with a business after it changes hands. When a business is sold, there's a risk that key staff might leave, which can hurt the business's operations and value. This plan helps prevent that by offering incentives to employees to remain with the company for a set period after the sale. These incentives can include financial bonuses, new employment contracts, or opportunities for career growth.
Real-World Example
The Software Company Sale
Imagine a software company is being sold. The buyer knows that the lead developers are crucial to the product's success. To keep them, the buyer offers each lead developer a retention bonus equal to 20% of their annual salary, payable in two installments: half six months after the sale and the other half after one year. They also offer new employment contracts with clear roles and responsibilities. This plan ensures the developers stay, providing stability and continuity for the new owner.
Why this matters
Keeping key employees after a sale is vital for business continuity and value. Their knowledge, skills, and relationships are often critical to the business's success. A good retention plan protects the business's operations and helps the new owner succeed.
Make sure your retention plan is clear and fair. Employees need to understand what they're getting and why it benefits them to stay.
Make sure your retention plan is clear and fair. Employees need to understand what they're getting and why it benefits them to stay.
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