Begin Retention Strategy Early During Mergers, Acquisitions

News Updates

Companies involved in mergers and acquisitions (M&As) that are successful in retaining key talent begin the retention process early, according to a new global survey from Towers Watson.

Roughly two-thirds to three-fourths of both buyers and sellers surveyed use retention agreements, chiefly for senior leaders below the boardroom level, key contributors and technical experts, according to the findings.

The 2012 M&A Retention Survey was conducted from February 2012 through early April 2012 with 180 companies from 19 countries. More than half of the respondents had completed between two and 10 acquisitions since 2010.

The survey focused on a subset of acquirers reporting greater success at retaining top talent. These companies included the 44 percent of respondents that rated their retention agreements as highly effective or mostly effective at employee retention during an acquisition, and had retained all or nearly all employees through the retention period in past acquisitions.

Among the findings:

  • Ninety-two percent of successful acquirers overall use retention bonuses; retention bonuses are more common in North America than Europe or Asia.
  • Ninety percent or more of buyers across North America, Europe and Asia use time-based “pay to stay” provisions—usually stretching six months to one year post-close.
  • Eighty-four percent of acquirers and 70 percent of sellers use retention agreements as their primary tactic, with retention bonuses as the cornerstone.
  • Seventy-four percent of acquirers across the regions surveyed use individual performance-based metrics to award retention bonuses vs. 38 percent that use organizationwide performance-based metrics to do so.

“In today’s climate, when companies are often buying skills or relying on an acquisitions staff to meet critical sales or market share goals, the ability to retain the right people can be a make-or-break element in the deal,” said Mary Cianni, global leader of M&A services at Towers Watson, in a news release. “Companies and shareholders increasingly recognize that achieving a deal’s strategic goals depends on having the right people, with the right skills, in the right roles.”

Starting the Process Early

Almost three-fourths of acquirers that succeed in holding on to key talent determine during the due diligence stage or during negotiations which employees they want to ask to sign retention agreements.

Nearly six in 10 acquirers less successful in retaining talent don’t ask employees to sign agreements until after the M&A transaction closes.

“The bottom line is that the sooner companies are able to pinpoint retention targets, the more thorough they can be in designing an effective retention program,” said Steve Allan, Europe, Middle East and Africa leader of M&A services at Towers Watson, in a news release.

Companies with successful retention strategies use many of the same tactics to retain employees as their less successful counterparts do, but emphasize certain ones to a much greater extent, the survey found.

While 92 percent of successful acquirers use retention bonuses as a tactic, they don’t rely solely on money.

“The most effective retention agreements include not just monetary incentives, but also a mix of varied retention tactics, with particular emphasis on personal outreach by managers,” Allan said.

In fact, 74 percent of acquirers that are successful in their retention strategies use personal outreach by managers and leaders, the survey found.

Retention efforts only go so far, though. Respondents said that among employees who leave the organization despite having retention agreements in place, six out of 10 cite the M&A deal as one of the primary reasons for leaving.

“The success of any transaction depends as much on effectively managing people and the organizational environment as it does on managing the timing and financials,” Cianni said.

“Organizations that keep their overall retention and engagement programs strong will be much better positioned to succeed years beyond the closing of the deal,” she added. “Through being prepared and proactive, HR, in partnership with their business leaders, has a tremendous opportunity to step up and influence the ultimate success of a transaction.”

The report will be available in July 2012. 

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