Why Palm Is Giving Out Stay Packages (PALM)

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There's an article on Gizmodo today about Palm's effort to retain key execs during its sale process. The headline says:

Palm Bribes Key Employees to Stick Around as SVP of Software Jumps Ship

I think that's an unfortunate choice of words. These are not "bribes", these are stay packages. And they are very common, including in the startup/venture capital world.

When the board of a company makes a decision to sell a business, it is best that they share that decision with the senior team, not just the CEO. The senior team is an important part of the business value a buyer will get for most transactions. And the buyer will want to meet with the senior team in due diligence. The stronger the team, the more value the company will fetch in the sale process.

But once you tell your senior team that the business is for sale, some of them, maybe all of them will start getting antsy. They will worry that the buyer will not want them. Or they will worry that the sale process will not succeed and then what will happen. Or they will worry that they'll end up working for a buyer that they don't want to work for. And so once you tell your senior team you are putting the company up for sale, you risk seeing all their resumes on the street.

Enter the "stay package." These are compensation packages that are specifically designed to keep the senior team and all valuable employees in the company through the sale process. They usually include a cash "sale bonus" which is paid when the sale transaction closes and additional stock options that should increase in value upon a sale transaction with vesting provisions that incent the recipient to stay at the buyer for some period of time.

This appears to be exactly what Palm did. The company is required to disclose such packages for its most senior managers because it is a public company. It does that through a filing called an 8K. AllThingsD has the Palm 8K filings posted on their blog if you want to read them.

Not only are stay packages common, they are best practices in sale processes where there is a risk of a talent drain. A Board should seriously consider them whenever a sale process is discussed. They are a critical part of maintaining and ideally enhancing shareholder value which is the Board's fiduciary responsibility. Calling them bribes misrepresents what they are for and why they are important for all stakeholders in the company.

Fred Wilson is a partner at Union Square Ventures. He writes the influential A VC, where this post was originally published.