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Do retention bribes make sense?

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And now, three words about retention bonuses: Are you serious?

Take the badly misnamed Best Buy (or, as a friend calls it, “Amazon’s showroom”), whose board of directors has awarded big piles of cash and restricted stock to its CFO, EVP/HR, President/International, and President/U.S. to encourage them to stay with the company instead of jumping ship to join Best Buy’s founder, Dick Schulze, as he attempts to take over the company.

Understand, I’m jealous. Can you blame me? Nobody has paid me anything remotely like this for screwing things up badly and repeatedly. Heck, nobody has paid me anything like this for doing a good job.

I should probably leave the EVP/HR out of this. She’s hardly responsible for Best Buy’s failure to provide the best buy … or anything remotely close to it … and its consequent ever-increasing decline in marketplace relevance, especially as she’s only had a couple of years to do any damage. But then, what impact is she likely to have on Best Buy’s future competitiveness that makes her worth a retention bonus like this?

But, the presidents of U.S. and international operations have their names all over Best Buy’s failures. And its CFO, who joined Best Buy in 2003, has been in his current role since before the start of the Great Recession. If the CFO position is important enough that a retention bonus is in order, that means its occupant has been involved in the planning and decision-making that has led to Best Buy’s steady decline.

All of which leads to two questions. The first: Is it a good idea to bribe top executives to stay? And second: If you’re going to bribe some top executives to stay, should they be the ones whose names are all over past failures or who won’t have a significant impact on future success?

The second question is, of course, rhetorical. The first is worth serious thought.

That the sums in question are bribes is by definition. Best Buy is paying a lot of money specifically to get these people to do something they wouldn’t otherwise do — to stay with the captain of a sinking ship instead of joining the band of mutineers (pick a different metaphor if you don’t like this one).

So the question is, should a board of directors want top executives who will only stay if they’re bribed to do so?

Regular KJR readers know my position on this: No (see “Is it time to end incentive pay?KJR, 4/23/2012). Any executive who doesn’t consider their opportunity to achieve something important to be an incredible privilege is an executive you’re better off encouraging a competitor to hire.

As for Dick Schulze’s attempt to take over the company, here’s a question for anyone considering an alliance with him: Why would you do that? He’s the guy who, when he had the chance to crush Amazon.com when it first expanded into consumer electronics and, oh, by the way, to crush Circuit City as an afterthought, instead chose to view Circuit City as the competitor that mattered?

Taking shots at Best Buy is easy and fun. Behind the fun is a question you might find yourself having to deal with in this era of frequent mergers and acquisitions: Whether to offer retention bonuses of your own.

That answer is, yes. There are times when retention bonuses make all kinds of sense, for example, when a company has been acquired, key positions are being consolidated, and you need the services of the good employees who hold those positions in the meantime, to ensure a smooth transition.

That’s assuming, of course, that while these employees are good enough to help with the transition, they aren’t good enough … or a good enough fit … to be worth finding a role for in the consolidated enterprise once the business integration process is complete.

So if you have employees like this — ones who will be essential to a smooth transition but who aren’t worth investing in as long-term highly desirable employees — you only have two ways to keep them on board — either bribe them, or lie.

Unless you lie, they’ll know that when the deal is done they’ll be out of a job. They’ll have no reason to do more than the minimum for you while finding a new place of employment that offers more stability.

If you need them and don’t want to lie, it’s the only solution that will work. Make the amount big enough to work, and no bigger.

Just don’t pretend that you’re doing anything fancy.

You’re offering a bribe.

Comments (8)

  • Isn’t every employee’s salary also a bribe under that definition? I mean, if you stopped paying everybody, then maybe some of them would still show up and do their old job because they were having fun. It’s a smalll group if it exists at all in the retail business. So they are getting money to do something they wouldn’t otherwise do. There is a definition of bribe that is consistent with that idea, but the other definition carries criminal intent.

    If I had to assign malicious intent to the move, it strikes me more like looting. I expect Best Buy to drop out of existence soon, and the move might keep it together just long enough to draw another year’s salary for the millionaires making the decision.

    Paying somebody to stay only makes sense if you are sure that the money is what’s luring them away. Schulze can only offer the promise of big paychecks in the future, if we are strictly talking about money. The founder is not the chairman anymore because he only told some of the board members about a brewing scandal. Buying loyalty was plan B for this group because they obviously didn’t have a culture where it was earned.

  • I recently worked with a fellow who, several years later, still talks glowingly of his last year with a company that was shutting down. There were retention bonuses (of course), but the thing that seem to matter was the openness of senior management: full disclosure, constant communication, support for finding new positions when the time came, and the fostering of camaraderie during that last year. This is a guy who openly discussed how he had no interest in participating in company picnics and similar social events, yet he kept in touch (and attended reunions several states away) with his colleagues from the old company.

    That retention bonus was part of a well-thought out strategy for a transition. If there is no comprehensive transition strategy, I can’t imagine the purpose.

  • Best Buy is easy pickings for this argument. Take a business that is specialized and relies on it’s talent to retain it’s niche. A retention bonus and/or incentive plan makes sense in my book if the talent is in high demand. In a perfect world the employee would want to stay regardless, but the days of pure loyalty are long gone. Instead businesses should use these bribes to their advantage as needed. I prefer profit sharing over incentives or retention bonuses, but I still believe businesses must use all the tools in their toolbox when there is a talent shortage or when you trip across that gem.

  • Bob left out one class of employees who can be offered incentives to stay in a merger: those who are good enough to help with the transition and to keep in the new organization but who don’t want to stay afterward. I and several others were in this situation years ago. My reason for not wanting to be in the new organization was geographical – they were moving HQ to another state and I didn’t want to move despite corporate offers to help financially. So we worked until our “drop dead” date, collected our bonuses and found other jobs. Win win all around.

  • Many mergers and acquisitions are undertaken without having looked at all the details of the final organization structure. This is similar to Mr. Reebels situation where you bribe people to stay through the chaos and uncertainty of the changes. These are the people with in-demand skills that not comfortable in the company’s rhetoric that their job is secure and that are not high enough up the ladder to have a golden parachute. The bonus is a short term purchase of loyality that the credibility of the high level promises cannot obtain.

  • Does anybody else see bribes and bonuses as two different things? I don’t see these two terms as interchangeable at all. A bribe is paid in advance to hopefully obtain some desired behavior (and hope is a lousy business strategy). So, is it a good idea to bribe top executives to stay? Heck no. On the other hand, a bonus is paid AFTER the desired behavior has occurred. When you reward desired behavior, that’s a pretty good strategy in my book.

  • I think the real question is not should these bribes been paid, since they shouldn’t have, but why would you want to keep these people in the first place? So they want to leave to join some guy trying to buy the company, maybe you should have your lawyers and accountants check to see if there is some relationship between the company’s current state and the buyout bid? Decrease value, lower the takeover costs?

    If there isn’t then they really are simply terrible managers, so let the other guy hire them and hire actual quality people to run the company. Oh, that’s right, the board hired them in the first place… Gee, isn’t that interesting.

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