What is an Earnup?

Mary McMahon
Mary McMahon

An earnup is a scheme where members of the management of a company that has just been acquired are provided with incentives to keep earnings high with the goal of making the acquisition more profitable. Earnups can also be used with mergers. This program may be discussed during negotiations involving the sale or merger, and it can also be developed after the deal is finished, depending on how the new owners of the company want to approach the situation.

Man climbing a rope
Man climbing a rope

In an earnup, management are usually offered bonuses for meeting performance targets. This encourages them to remain highly active in the company even though their roles may be shifting and they are accountable to different owners. After mergers and acquisitions, there can be a tendency for management to feel uneasy, and if the deal was contentious, they may also feel resentful. Earnups keep people focused on generating high returns and also offer some job security, by making it clear that the current management of the company is wanted on board and will play a valued role in the company's future.

The terms of an earnup are highly variable and people may be able to make negotiations for specific terms. Managers who intend to try and increase their earnup should plan on bringing supporting materials to a meeting, including records of their performance and plans for keeping the company profitable into the future. This information will be considered when deciding how much to offer in an earnup and people who are organized and focused during meetings can usually wring more out of the deal.

Financial incentives may include cash bonuses, stock options, and other benefits. Often, a mixture of incentives is provided. Costs associated with paying out these incentives are considered part of doing business, as they are designed to increase profitability. Management may also try to negotiate benefits for their entire departments, providing encouragement to employees lower down in the company hierarchy as well, depending on the company's ethic.

When an earnup is offered, the terms should be carefully reviewed. If it is not forbidden, managers may want to discuss the offer with other members of management and compare and contrast offers. In cases where a company has acquired other companies as well, it may be helpful to see what kinds of incentives were offered to those companies. This may provide useful context for deciding whether to take the offer or attempt to renegotiate.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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