How to Create a Retention Bonus Letter (Plus a Sample Letter)

Mergers and acquisitions cause a lot of turnover. In fact, a whopping 30 percent of workers can become redundant during the process, and while all of that is going on, companies also have to make sure that they retain key talent during the move, which is where a retention bonus can come into play. And the first step is to craft a retention bonus letter that is ready when you need it.

There are numerous reasons why a company would want to use a retention bonus. The main one, though, is to keep key talent onboard for as long as possible during a merger or acquisition because 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.

And, like we said above, one of the first steps is to create a retention bonus letter to keep on file so that you don’t have to make one ad-hoc during a merger or acquisition event.

Let’s get started with the basics.

A retention bonus letter is a document used to extend a retention bonus to your staff members while going through a merger or acquisition. In short, it provides an incentive in the form of a one-time (or two-time) payment for your top performers to keep them working at your organization for a given amount of time after the M&A event takes place.

When you start to write your retention bonus letter, you need to first understand how you want your bonus to work. Normally, companies figure out how much of a bonus to offer based on a percentage of the employee’s normal salary.

Others use different metrics – scaling bonuses based on performance, for example – to make an enticing offer.

Either way, you will need to fully understand the financial side of the bonus before offering the incentive to your staff members. We recommend that you craft a letter during the early stages of the merger or acquisition with areas for you to fill in later so that you have a document on file (M&As are incredibly stressful – it’s helpful to plan ahead).

With that said, the first step to writing a retention bonus letter is to actually start the letter just like you would any other correspondence to your staff.

Something like this:

“[Date]

[Employee Name]

[Address]

Dear [Employee Name]:”

Next, you want to move straight into what this letter is all about. We recommend getting right to the point with something like this:

“This letter is to congratulate and thank you for [insert reason: tenure at the organization, completing a project, etc].”

As you can see, this gets straight to the point. You need to make sure that you set up your retention bonus agreement (and letter) in a way that the person knows exactly what you are talking about up top.

After the introduction, you should hop right into the details about how the retention bonus will play out.

This section can be short and sweet. We suggest you start by congratulating the employee, making sure that they know they are valued. After all, you want them to stick around!

Here’s how this section can look (make sure to fill in your own details inside the brackets):

“We are pleased with all of your hard work and your continued commitment to [company name].

To show our appreciation for your work, [company name] is rewarding you with a bonus of $[insert amount]. This amount, less withholding taxes, will be paid out [insert the payout schedule].”

Now, it’s important to note that retention bonuses are typically paid out after the employee works for your newly formed organization for given period of time, usually over the course of two years, though it depends on your organizational needs.

For example, if your retention bonus agreement states that the bonus will carry on for two years, the employee will get paid a bonus at the end of year one and at the end of year two. This needs to be expressed inside the “[insert payout schedule]” part of the letter.

To learn more about retention bonuses agreements, how to craft one, and everything else you might want to know, click here:

Inside the retention bonus letter, you don’t need to explain all of the details. You just need to announce the offer. We recommend that you set in place a way for your staff member to then reach out if they are interested, allowing you to then send them the full agreement for them to look over and sign.

After you explain, briefly, the details of the retention bonus agreement, it’s time for the easiest part of the entire letter: signing off.

We recommend that you, again, state that you value the individual and that you look forward to their continued employment.

After that, you can sign off like you would any other letter.

Here’s how this section can look:

“Your continued service and commitment to [company name] is deeply appreciated, and we look forward to the future with you at our organization.

Sincerely,

[insert supervisor name]”

You’ve done it! At this point, your retention bonus letter is ready to go. We highly suggest you keep a sample letter like this on file for when you need it. Having the bones of the letter ready to be customized and sent out can make the process a lot easier because mergers and acquisitions are one of the most stressful events an HR department can go through.

A retention bonus letter is a document that is 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 certain period of time.

Retention bonus agreements are the legally binding contracts that actually extend the offer. 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 person to show 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 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.

Want to learn more about writing a great retention bonus letter? Download our sample here:

Josh Hrala

Josh is an HR journalist and ghostwriter who's been covering outplacement and offboarding for over six years. Before pivoting to the HR world, he was a science journalist whose work can be found in Popular Science, ScienceAlert, The Huffington Post, Cracked, Modern Notion, and more.