We examine the use of key employee retention plans (KERPs) in bankrupt Firms in Chapter 11 bankruptcy are more likely to offer retention and incentive bonuses to managers when creditors have greater control and when there is a greater risk of employee turnover. Incentives provided under such plans improve bankruptcy outcomes along several dimensions: they increase the likelihood of emergence, re- duce bankruptcy duration, and result in fewer violations of the absolute priority rule. We find no support for the view that KERPs enrich managers at the expense of other stakeholders. Instead, they appear to be an efficient contracting solution to the problem of retaining and incentivizing key employees in bankruptcy.