How to Write an Employee Retention Letter (Sample Included)

Mergers and acquisitions (M&A) often result in significant employee turnover. Statistics show that nearly 30 percent of workers can become redundant during these transitions. Amidst the organizational changes and uncertainties, retaining key talent is important for ensuring a smooth transition and achieving business objectives. One effective tool for this purpose is the employee retention letter, often accompanied by a retention bonus agreement.

There are numerous reasons why a company would want to use a retention bonus letter. The main reason is to keep key talent onboard for as long as possible during a merger or acquisition. Top talent often leaves for calmer waters during these tumultuous times, or they are poached by competing firms. By offering them a bonus for continued employment, you ensure that they keep performing at your company, allowing you to get back on track after the M&A and reach your business goals. 

One of the first steps is to create an employee retention letter to keep on file, so that you don’t have to make one ad-hoc during a merger or acquisition event. This comprehensive guide explains what employee retention letters are, how they can be effectively crafted, and includes a sample employee retention bonus letter template you can adapt for your organization.

An employee retention letter is a professional document issued by an employer or HR to an employee to communicate the company’s desire to retain the employee’s services within the organization and continue benefiting from their contributions. This retention letter is often used during pivotal moments—such as mergers, acquisitions, or restructuring—to provide reassurance and incentivize employees to remain committed to the organization.

Retention letters, particularly when tied to a bonus, serve several purposes such as: 

• Motivating key employees to stay at the company during turbulent times.
• Preventing talent loss that could hinder organizational goals post mergers and acquisitions.
• Offering a clear and tangible incentive to ensure business continuity.

A retention bonus agreement is often paired with an employee retention letter. It outlines a financial incentive—typically a one-time or staggered payment—offered in exchange for the employee’s commitment to remain with the organization for a specified duration. Think of it as the opposite of a severance agreement: instead of a payout for leaving, it’s a reward for staying.

Here are the key components you need in a retention bonus agreement:

1. Duration: Clearly define how long the agreement is valid.

2. Bonus amount: Specify the payout amount and any conditions tied to it.

3. Payment schedule: Detail when and how payments will be made.

4. Role details: Outline expectations and any changes to responsibilities.

5. Termination policies: Explain what happens if the employee resigns or is terminated before the end of the retention bonus agreement period.

Before drafting your retention bonus letter, it’s important to first determine how you want the bonus to be structured. Most companies calculate the bonus as a percentage of the employee’s base salary, offering a straightforward and appealing incentive.

Alternatively, some organizations use other metrics—such as scaling the bonus based on individual or team performance—to create a more tailored and motivating offer.

Regardless of the method, you’ll need a thorough understanding of the financial implications of the bonus before presenting it to your employees. It’s a good idea to draft an employee retention bonus letter template during the early stages of the merger or acquisition, leaving areas to be finalized later. This proactive approach ensures you have a foundational document ready in advance, reducing stress during the hectic M&A process. Planning ahead can save valuable time and help streamline communication.

In addition to employee retention letters, restructuring or acquisitions can also lead to employee layoffs. If you anticipate a change in your organization, click below to download our free essential layoff guide to help you prepare everything needed for a smooth reduction event that provides all of these benefits for both you and your employees. 

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Let’s start with an example employee retention letter to give you an idea of what your own employee retention bonus letter template should include. Below is a sample retention letter for employees that you can copy and customize for your own organization.

Feel free to copy and customize this free employee retention letter example to craft your own employee retention bonus letter template. Of course, this example is provided for illustrative purposes only, and does not constitute legal advice. Remember to review your M&A communications plan with your legal team before sending anything to your employees to ensure that you comply with all applicable laws.

Now let’s break down this sample retention letter for employees into its key components that you’ll need to include as you craft your own employee retention bonus letter template. There are a few essential steps to follow to ensure your employee retention letter is as thorough and thoughtful as possible. Keep these in mind as you customize this template for your organization.

The employee retention letter should immediately set the tone and purpose.

Reaffirm the employee’s importance to the organization. Acknowledge their contributions and explain how their role is critical to the company’s success.

Provide clear and concise information about the retention bonus, including amounts, timing, and conditions.

Clearly explain how retention bonuses will be handled if the employee leaves or is terminated before the retention bonus period ends.

To ensure enforceability, include essential legal clauses covering:

• Definitions: Clearly explain terms used in the employee retention letter, like “cause,” “bonus,” and “agreement duration.”
• Governing law: Specify applicable legal jurisdictions.
• Arbitration: Outline dispute resolution procedures.
• Amendments: State that modifications require mutual written consent by both parties.

Close the employee retention letter by reiterating your appreciation and next steps.

An employee retention letter is a document sent out to employees after or right before a merger or acquisition takes place that offers key employees a retention bonus if they stick around at the organization for a certain period of time. Retention bonus agreements are the legally binding contracts that extend the offer specifics. The letter is merely what you use to announce the plan to those you want to retain.

When writing a retention bonus letter, make sure you keep it short and simple. Start by showing that you value the employee, before moving into the details of what the retention bonus is. Offer a way for the employee to express interest in the offer, so that you can move forward with them signing the agreement.

After that, thank them again for their service at your newly formed company and sign off.

If done correctly, a retention bonus letter can seriously help you retain your key staff members during a merger or acquisition. By doing so, you can keep your business on track and get over one of the biggest M&A hurdles: talent management issues.

At Careerminds, we believe that you can never be too prepared for your next merger or acquisition, especially any that might result in workforce reductions. Our arsenal of resources, templates, guides, and industry-leading outplacement services can help you navigate the delicate process. If you’re planning a M&A event in the near future, click below to speak with one of our experts and see if we are the right partner for your organization.

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Cynthia Orduña

Cynthia Orduña is a Career and Business Coach with a background in recruiting, human resources, and diversity, equity, and inclusion. She has helped 50+ companies around the world hire and retain talent in cities like LA, SF, NY, Berlin, Tokyo, Sydney, and London. She has also coached over 300 people, from entry to senior levels, in developing their one-of-a-kind career paths, Her work has been featured in publications such as Business Insider, The Balance Careers, The Zoe Report, and more. To learn more you can connect with Cynthia on LinkedIn.