You may keep key employees around for a while post-merger if they signed a retention agreement. But, says a Towers Watson study, unless that agreement is backed up by "show-me-the-love" treatment, many will depart once the retention period ends.
The 2014 Global M&A Retention Study elicited information from some 248 executives worldwide who had been involved in a recent merger. While 68 percent said they retained as many as 80 percent of those who'd inked retention agreements, 43 percent were able to say they hung on to the same percentage of pact signers a year after the merger.
And the primary reason cited? Employees said uncertainty over a changing corporate culture, where they no longer felt valued and comfortable.
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"Clearly, companies should pay closer attention to the dynamics that will keep their employees for the long term," said Mary Cianni, Towers Watson's global leader of M&A services. "Companies involved in transactions should strive to understand the cultural implications of the deal, build employee engagement and work individually with key employees as early in the deal process as possible. These actions increase the likelihood that essential employees stay on board beyond the retention agreement period to ensure the success of the merger."
A large gap emerged between the later success of the companies that had high retention rates and those that didn't retain top talent very well. Some 88 percent of the high-retention employers said they eventually achieved the strategic goals of the merger, while 67 percent of those who hadn't done as well with retaining top talent said their goals were achieved.
"This disparity between high- and low-retention companies around meeting the objectives of the transaction underscores the critical impact that talent retention can have on deal success. High-retention companies behave differently. They excel at positioning talent as a key value driver for achieving the business goals of the deal," said Cianni.
Part of the success formula involved talent spotting in advance of the merger, Towers Watson said.
"High-retention companies were significantly more likely to identify and target these individuals — those who can affect the success of the transaction — for retention agreements when compared to low-retention companies (73 percent vs. 33 percent)."
These higher achieving companies did their homework and identified ahead of time the people who they believed would contribute to the merger's success. The best way to spot the good ones was to ferret the information out of the target company's management team, said 62 percent of respondents.
"Here again, high-retention companies differentiated themselves by a greater margin than low-retention companies (66 percent vs. 27 percent). High-retention companies also used management discretion to a greater degree in the agreement selection process than low-retention companies (32 percent vs. 8 percent)," Towers Watson reported.
What was the best way to secure the top talent in the acquired company? Cash, of course. But not everyone got the memo, apparently.
"Somewhat strikingly, high-retention companies used cash bonuses in retention agreements, exclusively or with other forms of compensation, far more often (80 percent for senior leadership, 89 percent for other employees) than low-retention firms (50 percent and 55 percent, respectively)," Towers Watson said.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
