Keeping top talent during a merger or acquisition is arguably critical to the transaction and the future success of the new organization. Yet retaining employees during times of transition can be challenging. In today’s job market especially, staff members may be inclined to jump the corporate ship in search of calmer waters.
Improving Retention, Initially
Be that as it may, a new study from Willis Towers Watson, a leading global advisory, broking, and solutions company, finds companies are making some progress in navigating the challenge.
The 2017 Global M&A Retention Study finds that 79 percent of acquiring companies are successful in retaining at least 80 percent of their employees— through the end of the retention period—by using financial retention agreements.
In the Willis Towers Watson 2014 survey on global M&A retention, 68 percent met this threshold.
Ongoing Challenges
However, after the retention period ends, it’s a different story. According to previous Willis Towers Watson research, after the first year, only about one half of the same companies retain at least 80 percent of employees who signed agreements.
“It’s a tale of two results. Acquirers have made good strides at keeping key talent for an initial period, but there’s room for improvement one year later,” said Mary Cianni, global M&A practice lead for Willis Towers Watson. “Companies are not using the retention period to capture hearts and minds to keep talent on board for the long term – and help ensure success of the merger over a longer period.”
Meeting Challenges
Cash bonuses, most commonly expressed as a percentage of base salary, remain the primary financial award in retention agreements for senior leaders (77 percent) and other key employees (80 percent).
“Retention bonuses are important – at least for the length of the retention period – but they’re only part of the equation in retaining talent,” said Cianni. “Personal outreach by leaders, strategic promotions, and employees’ participation on task forces are also beneficial and will pay dividends in the years ahead. Further, total rewards – particularly learning and development, and career opportunities for high potential talent – can be an important key to success through a strategy that meets employees’ needs, differentiates pay among high performers, and enhances employee engagement.”
The survey finds several compelling reasons to begin the retention process early by focusing on senior leaders; nearly a quarter (24 percent) of companies asked their senior leaders at target companies to sign retention agreements before the initial merger agreement signing.
It makes a difference. Early communication with senior leaders is a noteworthy differentiator between high-retention acquirers (28 percent) and low-retention ones (11 percent).
“Senior leadership typically steers the transaction pre-close and are most responsible for getting the deal done,” said Scott Oberstaedt, director of executive compensation for Willis Towers Watson. “To make sure they aren’t distracted by concerns over their own futures, early communication is critical to get them on board and aligned with the goals and strategies of the acquisition. Retention agreements provide a clear personal stake in the success of the new company.”
Why Employees Leave
Of those employees with retention agreements who do leave the company before the end of the retention period, nearly half (44 percent) blame the new or changing culture. Other top reasons for leaving include being aggressively pursued by competitors (36 percent) and not liking their new role (25 percent).
“Key employees understand their value in the marketplace, which raises the importance of additional retention tactics,” said Oberstaedt. “The most successful acquirers realize retention agreements alone can buy time—but not loyalty. And by not using their arsenal of tools to build loyalty during what can be tumultuous periods, companies often lose talent that would serve them well in the long run.”
Another finding worth noting is the reduction in the size of the retention budget. More than half of the acquirers (55 percent) have a retention budget less than 1 percent of the total transaction cost, which is nearly 50 percent lower than 2014, when the budget median value was 1.9 percent.
“While there are many reasons why this decrease may be taking place, we see acquirers becoming more strategic and more selective in using their retention dollars for maximum impact on a targeted group of talent,” said Cianni.