Talent retention following M&A largely focused on senior leadership

Avoiding an exodus of staff is key to long-term success, following an acquisition, according to a new report. Companies are signing senior leadership and key talent early at target companies, while bonuses and time-vested full shares/share units are used to keep staff throughout the retention period – although longer term retention remains a challenge.

M&A activity remains high, with buyers out to acquire companies with strong synergy bonuses, or other strategic reasons, from intellectual property to market access and scale. Talent has also become increasingly sought after, as labour markets tighten in the face of an increasing demand for specialists to meet various transformative initiatives.

The acquisition of a target is only a first step in the longer integration process, whereby one of the key elements to success, from a synergy as well as a wider business perspective, is holding on to the key talent that formerly worked for the acquired company.

In a new report from Willis Tower Watson, the consulting firm surveyed 244 respondent organisations across 24 countries, with the largest segment, 38% companies larger than 30,000 FTE, about their respective identification and retention strategies for talent. The study compared high retention firms against low-retention firms – high retention companies are those where more than 80% of staff are retained.

In terms of the current business environment wide trend, large numbers of companies (79%) are able to meet their retention goals, keeping at least 80% of people who have agreements until the end of the retention period. This represents a major improvement compared to 2014, when the number stood at 68%. The reason for leaving, tends to be a clash of cultures (44%), with the next most likely reasons for employees leaving post-acquisition being getting picked off by competitors (36%), or individuals not liking their new role (25%).

Those with senior leadership positions tend to be the main group targeted for retention agreements, as well as their direct reports (54%). When asked what the main factors for retention are, 55% said ‘employees below executive level with key skills in the context of the transition’, followed by ‘information from seller defining “leadership team”’; however, simple job title/level as well as job function/department were also used to identify targets for retention. Factors of a lower impact include ‘high-potential status’ 25%, ‘management discretion’ 23% and ‘high-performance status’ 22%.

In terms of the time-line, senior leadership tends to be sought quickly, with 24% being asked to sign retention agreements before any initial signing, a further 16% after the initial signing and 32% between the initial signing and the close of a deal – while just 14%, get asked after the close. The firm cites creating certainty for leaders as a key reason to sign them on earlier, given the impact they have on the wider transaction outcomes.

For other employees, a different strategy tends to hold, with 9% before the initial signing, 4% after, while 34% are sought for retention between the initial signing and the close. The largest segment, 35%, however, are signed up after the close.

When it comes to motivating staff to stick to their retention agreements, cash retention bonuses remain a key tool, at 77% for senior leadership and 80% for other employees. In addition, particularly for senior leadership, time-vested full shares/share units are used to motivate their retention. Around 20% of companies offer increases to base-pay, while for senior leadership, stock options are used in 16% of cases.

When it comes to how much companies invest in keeping talent, using the various techniques mentioned above, less than half (55%) budget more than 1% of the total acquisition cost. Around 20% budget between 1-1.99%, while 7% budget 2-2.99%. Around 5% budget between 5-20% of the total cost.

After the initial retention period, companies have a relatively difficult time holding on to key talent, with around half having departed within a year. To improve long-term outcomes, the research authors concluded, “We find that the most successful acquirers realise that retention agreements alone can buy time – but not loyalty. As a result, in addition to agreements, they use personal outreach and enhanced career opportunities throughout the desired retention period to convince key people to stay for the longer term.”