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About the survey
Financial retention programs remain a critical element in a holistic talent retention strategy during times of uncertainty, such as during M&A or a business restructuring. A constant challenge during normal times, retaining talent is even more difficult in these times of change. Retention programs provide the ever-important foundation of time; time to build a relationship with the talent critical to driving business value.
Key findings
- The most common retention tool remains a straightforward pay-to-stay approach, used by 84% of survey respondents, typically in the form of a time-based cash bonus, denominated as a percentage of base salary.
- Consistent with our findings in 2014 (but higher than in 2017), the median retention budget is 1% to 2% of total purchase price. However, over one-quarter of acquirers do not set a retention budget.
- A surprising new finding in 2020: Respondents are optimistic about retention outcomes and effectiveness of retention agreements, but a third of acquirers do not track retention rates.
- Even among survey respondents, use of retention awards was not universal; 16% of respondents who had recently completed deals did not use retention agreements.
Key features of retention programs used by serial acquirers
The most common financial retention tool remains a straightforward pay-to-stay approach, used by 84% of survey respondents. This is typically in the form of a time-based (as opposed to performance-based) cash bonus (as opposed to shares or options), denominated as a percentage of base salary (as opposed to a fixed amount).
It’s typically paid 100% at the end of the retention period, which is reported as somewhat longer in 2020 than it was in 2017. In addition to cash retention bonuses, many companies also use a variety of financial and nonfinancial retention tools.
A significant number of respondents do not track or set aside a fixed amount to serve as a “retention pool”.
Budget and individual awards
Consistent with our findings in 2014 (but higher than in 2017), the median retention budget is 1% to 2% of total purchase price. The percentage tends to be lower for larger deals, and a significant number of respondents do not track or set aside a fixed amount to serve as a “retention pool” (Figure 1).
The median individual award is 60% of salary for senior leaders and 30%-40% for others, both which show a continued increasing trend from prior surveys. However, practices range widely, with a significant number of companies paying senior leaders an award of two or more times their base salary.
Retention agreements cover less than 5% (at the median) of the employees in a target organization.
Retention program coverage
Retention agreements cover less than 5% (at the median) of the employees in a target organization, though a significant number of companies cover as many as 20% of the employees in a target organization (Figure 2).
Setting the retention pool
The primary drivers of the retention budget are the need for employees to transition responsibilities and the acquisition of new critical skills the buyer doesn’t have (Figure 3). This demonstrates a crucial linkage of HR M&A programs and activities to the business drivers of the deal.
Selection of talent for retention
Similarly, the primary factor in selecting individuals is possession of key skills and/or critical market/industry knowledge. In other words, the extent to which the acquisition is for the purpose of acquiring employees, as opposed to technology or other assets, drives the retention budget and employee selection (Figure 4).
Most serial acquirers are cautiously optimistic about the effectiveness of employee retention programs
Most surveyed companies expect more than 80% of leaders and employees covered by retention programs to remain until the end of the retention period; about half also expect them to remain one year after the retention period. The consensus among serial acquirers is that employee retention programs are designed to buy time for integration until high-touch retention activities can be properly deployed. This aligns with the cited reasons that covered why employees leave before they receive the full retention payment – and it is rarely about pay, benefits or the size of the retention award. Instead, the most attributed factors are cultural misalignment, disagreement with the company’s new direction, and dissatisfaction with the new role or manager.
Considering the significant investments companies make in employee retention programs, it is surprising that more than one-third of those surveyed do not track retention rates as a success measure for these programs.
The lessons for future deal makers
Retention incentives are a key tool for deal makers, as they help buyers to secure key talent for at least a defined period following the close of an M&A deal. Experienced buyers use this additional time to focus on key priorities, whether transitioning key skills or engaging acquired talent in the future of the combined business post-transaction.
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A detailed report of findings is available to survey participants only. We continue to accept survey submissions on a rolling basis. If you are interested in receiving the full global report (or one of the available region/country or industry cuts) but did not participate in the survey, please contact your consultants at Willis Towers Watson.
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| Title | File Type | File Size |
|---|---|---|
| The evolution of talent retention practices during M&A | .6 MB |
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