For business owners and executives, mergers and acquisitions (M&As) can be an exciting time to achieve rapid growth and even smash goals that otherwise would have been unattainable.
It’s all too easy for business owners and top leaders to see all the attractions of a merger or an acquisition but not understand the risks that come with it. An overlooked but significant risk of M&As is the loss of a company’s intellectual capital: its employees.
Why do employees choose to leave during or after a merger or an acquisition?
For many employees, M&As are a time of insecurity and uncertainty. When two companies or entities fuse, it usually entails the creation of new policies, new teams, new management, and even a completely new culture—in short, it’s a time of upheaval for many employees. Some of the most common concerns include:
- Uncertainty about job security
- Uncertainty about the future of the company
- Loss of confidence in leadership
- Survivors guilt in cases of downsizing
- Confusion due to lack of communication
- Fear of increased job stress and workload
- Loss of the company culture employees have grown used to
Faced with these fears and false (or true) perceptions, many employees tend to jump ship to regain some sense of control over their situation. And while it’s important to remember that no one person is more important than the whole, it’s equally prudent to remember that a company’s success also lies in being able to retain its human and intellectual capital.
Here are six actionable tips to consider when facing an M&A while navigating the risks involved in employee retention:
1. Offer A Retention Agreement or Incentive.
Most M&A models include retention incentives or financial remuneration for employees as part of the “cost of a deal” for the merger or acquisition. Give cash bonuses or financial assistance when possible to combat employee attrition, but don’t expect this to carry the weight of your retention program.
A cash incentive might certainly be appreciated, but it won’t be enough if you wish to build trust and create engagement for the employees you want to retain. This incentive is merely that—an incentive. And to truly make a trusting, engaged, and secure team, you’ll need to combine financial remuneration with other retention strategies.
2. Conduct Background Research.
During the acquisition, your company will gain access to the other’s personnel records. Once you do, it’s a good idea to do your own formal background research on the employees you will soon be acquiring or merging with.
If you don’t, you won’t be able to vouch for the people you will be bringing into your company, adding to your existing teams, and entrusting with your assets and business secrets.
Even the deceptively simple matter of figuring out how new employees fit into, add to, or transform the company culture is essential. Cultural misfit is a commonly cited reason for employee turnover. On that note, make sure you select employees based on merit rather than rank or even longevity.
Whether you acquire or merge with an organization, don’t be surprised if you discover there are employees or even managers who have been promoted with no basis on performance. Build trust with excellent employees (old and new) by showing that the new organization you’re building is one that is objective and merit-based.
3. Build a Credible Leadership Team.
Managers play a critical role in whether an employee decides to stay. Specifically, management transparency is a significant retention driver, increasing employee retention by as much as 30%.
After all, transparency is an essential foundation for building trust, and employees are more likely to stay in a company where they feel they can trust management to be candid and forthright.
For major organizational changes and shake-ups like M&As, it becomes even more critical for leaders to show transparency and trustworthiness in order to navigate the potentially bewildering M&A process effectively.
On that note, it’s also a good idea for managers to hold one-on-one meetings with each team member to facilitate better communication, answer questions, alleviate concerns, clarify any misunderstandings, and offer access to more information on the changes taking place.
4. Monitor Workload Increase.
Often, a by-product of M&As is the increase in workload for some employees. Should this be the case for your own employees, make sure you also invest in developing and upskilling them—in short, setting them up for success as they take on more responsibilities or step into new roles.
According to this article by Guthrie-Jensen, 40% of employees with poor training leave their jobs within the first year. To retain employees after an M&A, it’s worth investing in their professional development. Managers also need to keep a close eye on their team members to ensure they’re coping with their workload.
5. Have a Plan for Proper Integration.
Whether you’re merging or acquiring, employees who are moving over to a new company should feel welcomed and well integrated into their new team.
This can be as fundamental as ensuring they have proper workstations and equipment but should also include strategies such as having a formal, clear, and thorough onboarding plan.
6. Solicit and Act on Feedback.
Finally, throughout the entire M&A process, you should encourage constant feedback from your employees, old and new, about how the integration is going and what areas need improvement.
Set up feedback boxes or even (anonymous) online forms on which they can leave their comments. Beyond asking for feedback, your employees should also feel and see that their input is being heard and put into action. Be transparent about the feedback you get and how you’re working toward fixing or improving the entire process.
Employee retention is a struggle for many companies. More than 50% of businesses worldwide report they struggle with employee retention even without the added pressure of M&As.
The key to successfully keeping your employees happy and engaged amid an M&A is demonstrating your ability and commitment to doing the right things for them. This may include constant and transparent communication, setting the right expectations, offering financial remuneration, and supporting them in terms of professional growth.
|Eric Allison is the managing partner of Golden One Ventures, a boutique M&A firm catering to the middle market for the staffing and recruiting industry.|