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What’s a retention agreement?

On Behalf of | Feb 6, 2024 | Employment law |

Employees may come and go – but that doesn’t mean that employers like this reality. It’s estimated that replacing an employee costs an employer somewhere between six months and two years’ worth of their salary.

That’s why some employers will offer certain employees a retention agreement. Retention agreements are designed to encourage an employee to stay with a company – because it’s relatively rare that an employer wants to see a key employee walk out the door and go work for somebody else.

What are some of the key components of a retention agreement?

Each agreement can be unique, but some of the common features may include:

  • A retention bonus: This can be a one-time or periodic bonus that the employee gets for staying with the company for a predetermined time.
  • Vesting periods: Some agreements stipulate a waiting period or “vesting schedule” before the benefits are gained by the employee. Stock options and retirement plan contributions are often handled that way.
  • Performance-based incentives: Some retention agreements offer bonuses tied to a specific milestone or achievement as a way of encouraging top performance out of the employee.
  • Training and development opportunities: In fields where continuing education is key to an employee’s value, a retention agreement may provide for additional professional development or training. This can ultimately benefit both the employer and the employee.
  • Flexible work arrangements: Granting an employee guaranteed remote work options or an adjusted schedule to protect their work-life balance can also be a good provision in a retention agreement.

To an employee, a retention agreement probably always sounds positive. After all, it means that you are a valued part of the company’s team. However, like any other employment contract, there may be pitfalls of an arrangement that are not totally obvious. That’s why it is always wise to make sure that you have your contracts professionally reviewed and clarified before you sign.