The success of multi-billion dollar acquisitions rests heavily on retention of critical talent for the long-term
For organisations engaged in mergers and acquisitions, retaining critical talent directly impacts the overall success of the deal. According to Mercer’s Survey of M&A Retention and Transaction Programs, when companies adopt a retention programme, executives critical to long-term success are eligible for retention incentives 70% of the time, compared to employees for the short-term success of the integration who are eligible just 53% of the time.
Moreover, the use of retention incentives is even higher for organisations conducting cross-border transactions—80% for executives critical to long-term success and 60% for employees for the short-term success of the integration.
Mercer’s survey examined the extent to which two main tools for retaining critical talent— retention incentives and transaction bonuses— are used. According to the findings, retention incentives, which are designed to keep employees through or following the closing of the deal, are widely accepted means of talent retention while transaction bonuses, which reward employees for the work undertaken during a transaction, are used less frequently.
‘’Organisations must first review their acquisition strategy to determine if a retention incentive plan is needed to protect against critical employee flight risk. If so, key design considerations include which employees should participate, how much they should be awarded, pay-out timing and structure, performance conditions, and finally, overall plan cost,” said Ake Ayawongs, Mercer’s M&A business leader, Growth Markets (Asia/ Middle East/Turkey/Africa).
Retention programmes
Retention programmes focus on retaining executive and senior management critical to the integration process. According to survey findings, almost two-thirds of deals completed by participating organisations over the past three years used retention programmes. Typically organisations determine whether a retention programme is necessary early in the due diligence process, and then determine eligibility as the close of the deal approaches.
The type of retention incentives used depends primarily on the type of deal. Retention incentives also vary from country to country. According to the survey findings, US and Canadian organisations provide larger retention incentives than organisations in Europe and Asia Pacific when viewed as a percentage of base pay.
Transaction bonus programmes
Transaction bonuses are typically paid to CEOs, executives and deal team members. Forty-two percent of executives other than the CEO are most often targeted for a transaction bonus. Organisations in 33% of deals provide transaction bonuses to deal team members, and in 31% of deals provide them to the CEO. Other employees were less likely to receive a transaction bonus
“There is no one-size-fits-all retention incentive programme,” said Ayawongs. “While many of the plans share certain characteristics, retention plan design varies based on deal size and complexity, type of deal, industry sector and whether the transaction is crossborder. When organisations develop their strategic retention bonus programme, it’s critical to look beyond market benchmarks to examine their own unique needs.”
Paul Arkwright
Publisher
