Achieving a deal’s strategic goals often depends on having the right people with the right skills in the right roles. Yet the complex nature of transactions complicates the process, even for companies with M&A experience.
When two organizations come together, future success of the combined company is critically tied to its human capital, so it’s imperative for an acquirer to make talent retention a top priority.
To realize the goals of an acquisition, merger or other type of deal, it’s essential to have the right people with the right skills in the right roles early in the deal process.
This calls for a nuanced retention strategy that balances financial and emotional rewards, and helps employees understand the value of investing their energy to contribute to the new company’s success.
The intricacies of the talent retention process can’t be underestimated. Acquisitions are complex, as is the unpredictability of human emotions that surface when employees face a major career disruption.
The uncertainty can prompt top talent to leave a company, depriving the organization of experience and knowledge at the point when it is most needed.
Results from HR consulting firm Towers Watson’s 2012 Global Workforce Study show employees of both acquired and acquiring companies are far more likely to leave their positions in the two years following a transaction than employees not touched by an M&A event.
This study of workforce attitudes among 32,000 employees in 29 markets placed the likelihood of departure at 46 percent for employees of an acquired company and 39 percent for the acquirer’s workforce, significantly greater than the 28 percent recorded from respondents at companies not involved in a merger or acquisition.
This survey also examined retention practices among close to 180 organizations from 19 countries and shed light on the specific practices from 44 percent of the respondent organizations deemed more successful at retention, based on two criteria:
They rated their retention agreements as highly effective or mostly effective for retaining employees during an acquisition and they kept all or nearly all of their employees through the retention period in past acquisitions.
Two practices common to this subset of respondents rose to the fore as particularly important in influencing retention success. One is identifying retention candidates early in the deal process. The other is building strong connections to prospective employees through the right combination of financial and nonfinancial incentives.
Focus early on identifying talent: Successful deal-makers that retain top talent past the end of the retention period are roughly 2.5 times more likely than less successful organizations to identify talent early in the transaction cycle — usually during the due diligence phase.
Less than a fifth of successful retention organizations begin to target candidates once the deal has closed, compared with 58 percent of those less successful at retention. Nearly three-quarters of successful retention organizations identify talent either in the due diligence or negotiation stages.
Early identification of talent is not always simple. Access to relevant employee information may be limited, which can lead to more subjective decisions.Early decisions also require at least some understanding of employees’roles, functions, skills and their ability to contribute to the goals that initiated the transaction process.
While detailed information is often hard to access at the earliest stages, the data and Towers Watson’s experience with clients suggest it’s worth taking whatever informal steps are feasible to begin forming preliminary assessments of key people’s roles and skills, and to put in place plans to retain them.
Recognize the need for both financial and emotional connections: Money is important, but not sufficient on its own to ensure retention. Retention bonuses remain the top tactic across the global sample, used by 92 percent of acquirers more successful at retention, compared with 53 percent of those less successful at retention.
But the survey also found that acquirers recognize the value of simultaneously appealing to people’s financial and emotional or interpersonal interests and needs.
For example, 74 percent of the more successful retention organizations initiated personal outreach by leaders and managers to retain talent, compared with 24 percent of those less successful at retention — a 50 percentage point difference.
Twenty-eight percent of the more successful respondents also assigned a mentor to key talent to help them transition and assimilate into the new entity.
In contrast, 18 percent of those less successful at retention took this step. The less successful companies also put more focus on tactics such as moving people to different roles or locations — but presumably without the level of on-the-ground support that can make such redeployments successful in periods of uncertainty.
Increase engagement to improve retention: There’s another reason why looking beyond the financial is so important when developing an effective retention strategy: Engaging employees in an organization’s mission and goals is almost entirely about the relational and cultural aspects of the employer/employee relationship.
Once engaged, employees are far less likely to consider other employment opportunities, even during periods of uncertainty or stress.
Towers Watson’s study reaffirms these facts.
The results underscore why interpersonal tactics and workplace attributes — particularly leadership, culture and career — are so important in driving retention given the strong relationship consistently observed between high levels of employee engagement and retention.
The top drivers of what Towers Watson calls sustainable engagement relate to the work experience, from the role of leadership, to relationships with direct supervisors, to performance and career management.
These are the things that engage employees — whether during a corporate transaction or not. They also affect retention, directly and indirectly. Just less than three-quarters (72 percent) of the highly engaged respondents in the global sample said they preferred to remain with their current employer.
By contrast, more than a quarter (28 percent) of those respondents classified as disengaged indicated they wanted to remain with their employer.
The Essence of Retention
There are unique challenges to retaining talented employees and guiding that population through the transition period that follows a merger or acquisition.
But to a large extent, the practices that serve to retain employees in a deal are much the same as those used generally. In both cases, as Towers Watson research shows, effective retention has more to do with the nature and quality of the work experience and environment than with almost anything else.
Compensation is critical in the retention mix, but other retention drivers such as personal outreach are equally important because they speak to things that engage employees emotionally in their work and in the organization’s goals.
Further, a personal connection with the newly merged or acquired entity is essential. And for a company struggling with the disruptions of a corporate deal, drivers of high employee engagement can be at least as critical as monetary incentives.
Towers Watson research shows that retention in virtually any situation is most successful when a company satisfies employees’ financial, emotional and career interests.
Not all deals center on people. Often, companies undertake transactions to cut their losses on unprofitable or nonstrategic businesses or otherwise reorganize for efficiency and growth.
However, if retaining key talent is important to the transaction’s success, especially when it comes to executing on strategic objectives, here are some best practices for talent managers to consider:
•Develop a clear retention strategy early — one that recognizes the importance of retention to deal success and is connected to the business strategy. For talent managers, the starting point is determining the number, mix, skills and cost of employees needed to meet the deal’s strategic objectives.
•Identify the right people to target, and do it early. Talent managers should leverage all information available to make informed decisions balancing employee attraction, retention and engagement needs for these target segments against cost and risk factors.
•Determine the elements and timing of retention agreements to improve the odds of success. For instance, understand and determine how a retention strategy fits with an overall total rewards and talent management program.
•Don’t rely solely on money; high-touch tactics are important, too. Consider actions beyond monetary ones that will help achieve longer-term strategic goals, such as personal outreach by leaders and managers.
•Adhere to the retention strategy. While there should be some flexibility if issues arise, decisions can be made more quickly and readily with an agreed-upon framework and clear guiding principles.
The 2012 Global M&A Retention Survey by Towers Watson reveals global geographic differences that multinational corporations should consider when they form their retention strategy prior to an M&A.
The study noted differences in both the use and timing of retention agreements. North American respondents, for instance, are far more likely (87 percent) to rely on retention bonuses than those in either Asia (58 percent) or Europe (65 percent). Asian respondents are least likely to focus on retention early: 61 percent wait until after the transaction closes.
In North America, the opposite is true. Forty-eight percent begin retention efforts during due diligence, and 17 percent start the work post-close. European acquirers fall somewhere in the middle, with a quarter (26 percent) beginning at due diligence and 37 percent waiting until after close.
North American respondents are also most likely to incorporate personal outreach and mentoring through the transition period after the transaction’s completion.
Seventy percent of North American respondents incorporate personal outreach by leaders and managers as part of their retention strategy, and 27 percent assign a mentor to key talent. Those practices are less common in Asia — reported by 58 percent and 12 percent, respectively — and in Europe — 65 percent and 13 percent respectively.
Mary Cianni is global leader of mergers and acquisitions for Towers Watson, an HR consulting firm. She can be reached at email@example.com.