June 9, 2026 – Article by Kevin Ellman CFP® and Paul Miller, President.
Illustration by Janet Atkinson
Joe Smith spent his 40-year-career building a successful business and was finally ready to cash out and retire. He envisioned spending his Golden Years in Florida, playing golf, fishing, and generally enjoying the sunshine.
To fund his retirement, Joe was planning on selling his company and, on paper, he was in a good position to do so. While Joe had always been at the helm—as founder and CEO—he had also invested a lot of time and effort into finding, training, and developing key executives. This made his company particularly attractive to potential buyers. In theory, his two most senior and tenured leaders, Sam and Mike, would work closely with any buyer to ensure a smooth transition and then stay on to continue growing the business.
Feeling confident in his plan for the future, Joe hired a broker to help him find a suitable buyer, and after several months of meetings and negotiations, had a firm offer and a letter of intent in place to sell his business. Once the deal closed, Joe would be on his way to his dream retirement.
The Flawed Exit Plan
While Joe was excited about the prospect of selling his business and retiring to Florida, Sam and Mike had begun to worry about their futures. They had no ownership stake or financial security tied to the business, so when they heard about Joe’s plans to sell, they felt compelled to explore other options.
Both Sam and Mike had been instrumental in building and operating Joe’s company and had strong relationships with many of the firm’s major clients. But ultimately, they had no loyalty to the soon-to-be new owner and had to make a choice.
They decided to leave Joe’s firm and opened a competing operation just down the street, taking several major accounts with them. When the buyer learned that Sam and Mike were both leaving—and taking a significant portion of the business and revenue with them—it dampened his enthusiasm for the deal, and he withdrew his offer.
Rather than retiring to Florida, Joe found himself back at the reins of a company that was, unfortunately, considerably less valuable and attractive to potential buyers. Not only was he struggling to run the business without his two trusted leaders by his side, but he was also fending off intense competition from their new firm. Joe now faced many more years of hard work in order to get the company back to a profitable and “sale-ready” position.
Joe’s story is a common one, but it isn’t inevitable. The entire situation could have been avoided with some advance planning and a strategy designed to retain and reward key executives.
Building an Executive Retention Program
Executive retention programs are also commonly referred to as “Golden Handcuffs.” The goal is to recruit, reward, and retain your key executives, typically through high-value financial incentives that encourage staying with a company long-term, even after a sale.
A well-designed plan spells out the specific obligations of the executive and the company, the incentives being offered, vesting requirements, and payout structures.
Mutual Obligations
The foundation of an executive retention or golden handcuffs program is a formal participation agreement that provides mutual security. The company commits to protecting the executive from being fired without cause. In exchange, the executive commits to a non-compete clause, ensuring that any relationships and company secrets stay within the firm in the event that the executive leaves of their own accord.
Long-Term Incentives
These agreements often stipulate that the company will contribute a certain dollar amount to a long-term savings vehicle for the executive. While every business and industry is different, most high-impact plans call for an annual contribution of 10% to 30% of the executive’s salary. This allocation can take the form of company stock options, cash equivalents like bonuses, or other strategic funding vehicles.
Funding Vehicle
The plan becomes credible to executives when they see the company is consistently setting aside money for their future. To comply with relevant laws, this funding must be “informal,” meaning the company can use assets such as bonds, stocks, mutual funds, or life insurance to build a dedicated fund that will ultimately be used to pay the executive’s benefits in full. Because these funds remain an asset of the company until they are vested, the company retains the funds if an executive leaves before meeting their service requirements.
Vesting Schedule
Most executive retention plans include a vesting schedule that dictates how long an executive has to stay with the company before receiving their full benefits. While these schedules can be customized, they typically span 10, 15, or 20 years and allow executives to earn incremental wealth each time they reach a specific tenure milestone. Under this structure, the longer an executive stays with the company, the closer they get to earning the full benefit amount, regardless of whether they eventually leave or retire.
Benefit Payout
The “secret” to a successful golden handcuffs program is the scale of the reward. You want your top executives to think twice before accepting an offer from a competitor or leaving to start their own firm. Over a long career, large annual contributions can build into a sizable retirement benefit—possibly in the millions—depending on the timeframe. This gives executives a compelling reason to stay with your company and ensure its continued success, even through a change in ownership.
Make sure your most talented key executives don’t leave when you need them most. Learn more about our Business Succession Planning Process services at Wealth Preservation Solutions.