While the vast majority of companies involved in mergers and acquisitions use retention agreements to retain key talent, a new survey by global professional services company Towers Watson shows companies that are more successful at retention begin the process early — identifying people and tactics — and don’t rely solely on money.

The survey, conducted earlier this year, included 180 companies from 19 countries and focused on current retention practices, as well as specific tactics used by those companies that the survey identified as more successful in keeping top talent. The responses revealed the effectiveness of various retention strategies and also confirmed that, while economic uncertainty has slowed the pace of deal making in some parts of the world, acquisitions and divestitures remain a viable growth strategy for many organizations. More than half of the respondents completed between two and 10 acquisitions over the last two years.

“With successful deal implementation a core priority for many companies, the focus on retention has intensified,” says Mary Cianni, global leader of M&A services at Towers Watson. “In today’s climate, when companies are often buying skills or relying on an acquisition’s staff to meet critical sales or market share goals, the ability to retain the right people can be a make-or-break element in the deal. Companies and shareholders increasingly recognize that achieving a deal’s strategic goals depends on having the right people, with the right skills, in the right roles”

Since most companies that use retention agreements as part of their overall strategy still face challenges in keeping people, Towers Watson focused on a subset of the acquirers that reported greater success at retention to learn what they did differently. These “successful” buyers included the 44% of respondents that rated their retention agreements as being highly or mostly effective at retaining employees during an acquisition and that also retained all or nearly all employees through the retention period in past acquisitions.

The survey finds that companies with successful retention strategies identify which employees they want to target for retention agreements early in the process. Almost three-fourths of successful acquirers (72%) determine which employees are asked to sign retention agreements either during the due diligence stage or during the transaction negotiations. That is twice the number of less successful acquirers (36%) that ask employees to sign agreements during either of those times. In fact, nearly six in 10 (58%) of less successful companies don’t ask employees to sign agreements until after the transaction closes.

“Deal makers that are successful at retaining top talent beyond the transaction tend to ink retention agreements early in the cycle, often as early as when a deal gets under way,” says Steve Allan, EMEA leader of M&A services at Towers Watson. “Some companies also start determining which employees will help the organization move ahead with the deal as soon as the due diligence process begins. The bottom line is that the sooner companies are able to pinpoint retention targets, the more thorough they can be in designing an effective retention program.”

While companies with successful retention strategies use many of the same tactics to retain employees as their less successful counterparts do, they also emphasize certain ones to a much greater extent. The vast majority (92%) of successful acquirers use retention bonuses, compared with just 53% of less successful companies. Additionally, three-fourths (74%) of successful companies use personal outreach by managers and leaders, more than three times the number of less successful acquirers (24%) that use this tactic.

“While money is a large part of the retention game, it isn’t everything,” says Allan. “In fact, the most effective retention agreements include not just monetary incentives, but also a mix of varied retention tactics, with particular emphasis on personal outreach by managers.”

 

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