ARLINGTON, VA, November 2, 2017 — The effectiveness of financial retention agreements to ensure that acquired talent remains with the new company during a merger or acquisition has improved over the past three years, according to Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company. The company’s 2017 Global M&A Retention Study found that 79% of acquirers are successful in retaining at least 80% of their employees with agreements through the end of the retention period. In the company’s prior survey (2014) on global M&A retention, 68% met this threshold.
However, it’s a different story one year after the retention period ends. According to previous Willis Towers Watson research, after that one year, only about one-half of the abovementioned companies retain at least 80% of employees who signed agreements. “It’s a tale of two results. Acquirers have made good strides at keeping key talent for an initial period, but there’s room for improvement one year later,” said Mary Cianni, global M&A practice lead, Willis Towers Watson. “Companies are not using the retention period to capture hearts and minds to keep talent on board for the long term — and help ensure success of the merger over a longer period.”
Cash bonuses, most commonly expressed as a percentage of base salary, remain the primary financial award in retention agreements for senior leaders (77%) and other key employees (80%). “Retention bonuses are important — at least for the length of the retention period — but they’re only part of the equation in retaining talent,” said Cianni.
“Personal outreach by leaders, strategic promotions and employees’ participation on task forces are also beneficial and will pay dividends in the years ahead. Further, Total Rewards — particularly learning and development, and career opportunities for high potential talent — can be an important key to success through a strategy that meets employees’ needs, differentiates pay among high performers and enhances employee engagement.”
The survey revealed several compelling reasons to begin the retention process early by focusing on senior leaders; nearly a quarter (24%) asked their senior leaders at target companies to sign retention agreements before the initial merger agreement signing.
Early communication with senior leaders is a noteworthy differentiator between high-retention acquirers (28%) and low-retention ones (11%).
“Senior leadership typically steers the transaction pre-close and are most responsible for getting the deal done,” said Scott Oberstaedt, director, Executive Compensation, Willis Towers Watson. “To make sure they aren’t distracted by concerns over their own futures, early communication is critical to get them on board and aligned with the goals and strategies of the acquisition. Retention agreements provide a clear personal stake in the success of the new company.”
Of those employees with retention agreements who do leave the company before the end of the retention period, nearly half (44%) blame the new or changing culture. Other top reasons for leaving include being aggressively pursued by competitors (36%) and not liking their new role (25%). “Key employees understand their value in the marketplace, which raises the importance of additional retention tactics,” said Obetrstaedt. “The most successful acquirers realize retention agreements alone can buy time — but not loyalty. And by not using their arsenal of tools to build loyalty during what can be tumultuous periods, companies often lose talent that would serve them well in the long run.”
Another finding worth noting is the reduction in the size of the retention budget. More than half of the acquirers (55%) have a retention budget less than 1% of the total transaction cost, which is nearly 50% lower than 2014, when the budget median value was 1.9%. “While there are many reasons why this decrease may be taking place, we see acquirers becoming more strategic and more selective in using their retention dollars for maximum impact on a targeted group of talent,” said Cianni.
About the study
The 2017 Global M&A Retention Study, our third in the past five years (also conducted in 2012 and 2014), examines the structure, use and effectiveness of retention agreements during an acquisition or merger, with a particular focus on the financial elements of those agreements. To qualify for the study, organizations must employ at least 500 people (1,000 if based in the United States), complete either a merger or an acquisition within the past two years, and use employee retention agreements for at least one of those transactions.
The study collected data between March and May 2017, from 244 respondents across 24 different countries in Asia, the Americas and Europe. Within the past two years, 91% of the respondents had acquired another organization, 10% had merged and 6% had been acquired. More than half the acquirers (56%) and 47% of the sellers are based outside the U.S. They represent virtually every industry. Seventy-one percent of the acquirers are publicly held. Thirty-six percent of transactions were global, and 64% were regional. Less than half (44%) of the transactions were worth more than half a billion dollars.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at www.willistowerswatson.com.
Media contact
Ed Emerman +1 609 275 5162
