Just how effective are retention incentives in holding on to key staff during a merger or acquisition? The good news from our Global M&A Retention study is that they’re improving all the time.
In this study, our third since 2012, we surveyed 244 companies across 24 different countries in Asia, the Americas and Europe, to better understand what employers do to retain key staff. We examined the structure, use and effectiveness of retention incentives during an acquisition or merger, with a particular focus on the financial elements of those incentives.
A very solid 80% of participants indicated they retained the talent who received incentives over the span of the retention period – up from 70% in 2014.
The most successful acquirers realise that retention incentives alone can buy time, but not loyalty. Our study found they also use personal outreach and enhanced career opportunities throughout the desired retention period to convince key people to stay for the longer term.
Four ways high-retention companies behave differently
We found that high-retention companies exhibit four critical traits:
- Specialised selection – high-retention firms are more likely to target employees below the executive level with key skills than low-retention firms (61% versus 47%), while low-retention firms are more likely to give awards to those identified as high potential (33% versus 23%) or high performance (30% versus 21%).
- Early communication – at high-retention acquirers, 28% of senior leaders are asked to sign before the initial signing, versus only 11% for low-retention acquirers.
- Standardised awards – high-retention companies are less likely to take values earned at sale (e.g., shares owned or accelerated share awards) into account when determining retention values.
- Delayed vesting – high-retention acquirers are more likely to pay out in full only at the conclusion of the retention period (53% senior
leadership and 61% other employees), while low-retention acquirers use interim vesting (35% senior leadership and 39% other employees).
Four best practices
Focus initial retention efforts on senior leaders. This is where you should start the retention process. Senior leaders tend to be the group leading the transaction pre-close, and most responsible for getting the deal done. To make sure they are not distracted by concerns about their own futures, it’s critical to get them on board and aligned with the goals and strategies of the acquisition.
Identify other retention candidates who matter to the deal. Employees below the executive level with key skills considered critical to the transition (55%) are just as likely as senior leaders (54%) to be offered retention incentives.
Cash is king. While a combination of cash and other types of awards is common, cash continues to dominate with 77% of acquirers globally giving senior leaders cash awards and 80% giving cash to other key employees, about the same as 2014.
Balance pay to stay with pay to perform. Since 2014, the use of time-based incentives for senior executives has grown from 35% to 48%, while performance-only plans have decreased from 14% to 8% for senior executives and from 16% to 6% for non-executives. The challenge is to get the right balance between encouraging top performance and setting reasonable performance metrics. Those that reflect the employee’s job level, role and skills, and the degree to which they can reasonably be expected to influence company performance.