Thoughts on key employee risk.

When it comes to making sure that key employees stay with the business in the transition period post-close, you have two options: the carrot and the stick. In general, the carrot is the better choice. And carrots come in many different varietals, so you have options: - Salary - Bonuses - Benefits - Equity Depending on the type of employee, strong base compensation and benefits are sufficient. And if an employee is particularly mission critical, a grant of restricted equity that vests over time adds something more—it aligns employer-employee interests. But what about the stick? The stick generally comes in one form—the non-compete (and its twin the non-solicitation). In essence, you’re threatening the employee with a lawsuit. “If you leave my company and ply your trade elsewhere, I will come for you.” But non-competes aren’t always available. Unlike non-competes in the sale of a business context (where they are critical), employer-employee non-competes are heavily regulated and, in some states (e.g., CA), outright prohibited. And if a non-compete is all that is stopping someone from leaving, you’re unlikely to see the best of that employee. That is not to say that non-competes have no place in employee retention. If the employee could destroy the goodwill of your business—by, for example, setting up a competing business--a non-compete, where permitted, is a useful tool. But no one likes working under the threat of a stick. And however you decide to proceed, you can’t get around an essential element of human nature. You can’t nail employees to the office floor; they’re humans, and inherently mobile.