While the vast majority of companies involved in mergers and acquisitions (M&As) use retention agreements to retain key talent, a survey by consultancy Towers Watson shows that companies that are most successful at retention begin the process early—identifying highly valued people and using financial and nonfinancial rewards to keep them onboard.
Towers Watson's 2012 M&A Retention Survey, conducted from February through April 2012, included 180 companies—some of the world's largest serial acquirers among them—from 19 countries. The responses revealed the effectiveness of various retention strategies and confirmed that, while economic uncertainty has slowed the pace of deal making in some parts of the world, acquisitions and divestitures remain a viable growth strategy for many organizations. More than half of the respondents completed between two to 10 acquisitions over the previous two years.
“With successful deal implementation a core priority for many companies, the focus on retention has intensified. In today’s climate, when companies are often buying skills or relying on an acquisition’s 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.
Successful Acquirers Do Things Differently
Because most companies that use retention agreements as part of their overall strategy still face challenges in keeping people, Towers Watson focused on a subset of the acquirers that reported greatest success at retention to learn what they did. A key finding: While companies with successful retention strategies use many of the same tactics to retain employees as their less successful counterparts do, they emphasize certain ones to a much greater extent. For example:
• The vast majority (92 percent) of successful acquirers use retention bonuses, compared with just 53 percent of other companies.
• Three-fourths (74 percent) of successful companies use personal outreach by managers and leaders, more than three times the number of other acquirers (24 percent) that use this tactic.
“While money is a large part of the retention game, it isn’t everything. In fact, the most effective retention agreements include not just monetary incentives but a mix of varied retention tactics, with particular emphasis on personal outreach by managers,” said Steve Allan, regional leader of M&A services at Towers Watson.
Use of Retention Agreements
Among key findings from survey respondents:
• Retention agreements are the primary retention vehicle—used by 84 percent of acquirers and 70 percent of sellers—with retention bonuses the cornerstone of this approach. Roughly two thirds to three quarters or more of buyers and sellers use agreements, chiefly for senior leaders below the boardroom level, key contributors and technical experts.
• Time-based “pay to stay” provisions in retention agreements are used by 90 percent or more of buyers across North America, Asia and Europe. These provisions typically stretch from six months to one year after the deal is closed.
• Retention bonuses are far more common in North America (reported by 83 percent of respondents) than Asia (40 percent) and Europe (56 percent).
• Personal outreach by leaders to retention targets shows a similar pattern across the regions.
• Performance-based metrics are less common but in use at roughly half the acquiring companies across the regions, with nearly twice as many (74 percent) using individual performance goals as using organization-wide performance goals (38 percent).
• Retention efforts can go only so far. Of those employees who leave the organization despite having retention agreements, six out of 10 cite the 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. Organizations that keep their overall retention and engagement programs strong will be much better positioned to succeed years beyond the closing of the deal,” stated Cianni. “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.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Reward Strategies Should Target Key Talent, SHRM Online Compensation Discipline, May 2012
Managing Human Resources in Mergers and Acquisitions, SHRM Templates and Tools, December 2010
Be a Master of Mergers and Acquisitions, HR Magazine, June 2010
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